Dealer Lab: Dealership Turns a Profit in October

Publish Date: 
Nov 13, 2009
By Joe Delmont

Editor’s note: The Dealer Lab project is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk. In July, he began putting his ideas into practice by taking over management of Florida Motorsports, which has stores in Naples and Punta Gorda, Fla. It lost nearly $1 million in 2008. Shenk will share data as he works to bring the business back to profitability. Our reports will cover all major operations, including, but not limited to: new and used unit sales, service, parts, apparel, accessories, F&I, personnel and marketing. Dealer Lab reports will be transparent; they’ll contain the good, the bad and the ugly.

In Florida, the thunderstorms tend to dissipate in October and motorcycle riding picks up. That certainly seemed to be the case at our Dealer Lab operation. The Naples store posted nearly a $55,000 turnaround in profitability from September to October. Net income in October from operations, excluding an extraordinary legal expense of $5,500, was $34,400, up from a loss in September of $21,800.

The renewed interest in motorcycles was obvious. New bike sales in October hit 28 units, a 33 percent jump from the 21 units sold in September. Total unit sales for the month were 82 units, new and used, up from 73 total units in September. Interestingly, the average price per unit sold dropped in October to $7,600, down from more than $9,400 the previous month.

It’s also interesting to note that sales revenue from units sold dropped $57,720, or 9.3 percent, month over month, in October to $559,455 from $617,175 in September. By comparison, October 2008 numbers had dealership sales totaling $68,000 less than in the same month this year, and there wasn’t any advertising in October 2009. The Naples store lost $32,644 in October 2008. Given this October’s net profit of $34,407, the store showed an improvement of $65,051 over the same month in 2008.

 

    Here are a couple of other numbers to note:
  • Sales were down by $1,260 per day, October over September.
  • But gross profit per day was up by $1,485 to $28,800.
  • And net profit was up $2,421 per day to $34,000.
  • Flooring is still way too high, some $8,000 more than it should be. But inventory was reduced by about $400,000.
  • Front end gross profit is still about $200 PVS (per vehicle sold) light, but that’s what happens when you’re driven by inventory. “We could have had another $16,000 in gross profit, creating $5,600 more in compensation for the sales team and sending another $10,000 to the bottom line,” Shenk says.
  • Parts and Accessories is about half of what it should be, says Shenk.

“That’s $24,000 short on gross profit, and it would have created $8,400 more payroll for the Parts and Accessories team while driving $15,000 more to the bottom line,” he says.

What changes were made in October that caused the big turnaround? Very little, says Shenk, and that’s the exact point that many business leaders miss. It’s not what you do today that improves this month’s performance; it’s what you did six months ago. “The sales training programs and the personnel moves we made in July,” Shenk says, “are paying dividends today. We didn’t make any substantial changes in October. We did the heavy changes in the early months, and we’re starting to see the results now. The beauty is that we’re not done. We have more to do.”

On a side note, Shenk says that many dealers who talk with him wait too long to make changes. “They want to know what they can do this month to increase profits right now,” he says. “It doesn’t work that way. You can make changes today, but you shouldn’t expect to see the impact for six months.”

The biggest change Shenk made at Florida Motorsports last summer was implant sales training throughout the store. “When you touch customers,” he says, “you get sales training. We don’t sell tune-ups, we don’t sell helmets, we don’t sell motorcycles. We sell the experience and the lifestyle. When your people do that, you can be successful.”

Another huge step that Shenk took was to build an aggressive follow-up program to reach out to customers and noncustomers alike. While monitoring customer satisfaction is important, it’s perhaps more important to track visitors to your store who did not buy anything. These prospects can be 80 percent of your traffic, says Shenk. Working with Victory Solutions, a Florida company that specializes in follow-up phone calls for dealers, Shenk reaches out to nonbuyers the day after they visit the dealership.

Next month, we’ll talk more about Victory Solutions, but for now here’s an interesting number: Shenk figures that the Victory calling program in October helped him sell a motorcycle to 13 of the prospects who visited his store and left without buying a bike. That’s about $1,315 in PVS or $17,000 in gross profit that he would have missed without the calling program. The $17,000 translates into $5,600 in additional compensation for the sales team and $11,000 in additional profit on the bottom line — one-third of the month’s overall dealership net profit. You can find out more about Victory Solutions by visiting www.victory solutions.com.

One final note: Some of you have asked about the very low monthly expense for advertising. In October it was $2,521, and in September it was $4,430. Those expenses are insufficient to drive traffic, noted one dealer, and really are a waste of money. Shenk agrees. The expenses are primarily for advertising in media such as Yellow Pages and the Internet. “We’re not going to spend advertising money to make a bad impression,” Shenk says. “We’re not going to advertise for people to come to our stores until we’re ready to serve them properly.”

Next Month: Victory Solutions and how follow-up calls can make money for you.


This story originally appeared in the Dealernews December 2009 issue.