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, detailing his efforts to return Florida Motorsports to profitability.
When he took over management of the two stores — located in Naples and Punta Gorda, Fla., — in July 2009, the Punta Gorda store had been losing money. Shenk and a partner have purchased the Punta Gorda store and renamed it Destination Powersports. Shenk no longer is involved in the Naples location.
The financial information in this report is taken from the dealership’s Composite Report supplied by Shenk and is prepared as part of the dealership’s participation in the PowerHouse Dealer 20-Group. The Composite Report is produced from the store’s monthly financial report. In preparing these Dealer Lab reports, Dealernews reviews the dealership’s unaudited P&L statement and Balance Sheet and its Composite Report.
The net income for October posted by Destination Powersports of Punta Gorda, Fla., our Dealer Lab dealership, increased strongly over October 2010, but the dealership’s overall profitability continued to be held back by the sluggish performance of the sales department. Total dealership profitability hit $12,606 for the month, up from $1,941 in October 2010, and $2,594 last month.
However, the sales department (without F&I) contributed a loss of $4,775 to overall dealership net income on a gross profit of $34,277 for the department. That’s an improvement over October 2010 when the sales department recorded a gross profit of $30,347, but had a departmental loss of $13,871.
Sales of major units in October were about flat with last year: 35 units this year, compared to 34 major units in October 2010. Year-to-date, through October, however, unit sales revenues were $3,005,168, up 43 percent from last year’s figure of $2,091,391.
While the total unit sales of motorcycles in October were about flat, year-over-year, at 30 units this year compared to 28 units in October 2010, the change in year-to-date figures of used motorcycles is startling. Last year, the dealership sold 75 used motorcycles through October. This year, that number jumped to 120 units, an increase of 60 percent, partly because owner Bill Shenk had increased capital to buy more used machines. Sales of new motorcycles were about the same, increasing by two units from 111 last year to 113 this year.
The dealership’s inventory of used motorcycles in October was bulked up considerably over what it had available in October 2010. This year, the dealership had 39 used motorcycles available in October, compared to only 10 at the same time last year.
This year, Shenk has been able to get $100,000 more to purchase used machines than he had last year. “We still don’t have enough different types of used units to properly cover the local used marketplace, though,” he says. “Consequently, we still are losing profit opportunities.”
Most of the dealership’s used inventory growth comes from making calls to private sellers. In October, the dealership began setting up a program to buy through Manheim Specialty Auctions, but available funds will still be a limiting factor here.
The total inventory of new and used machines at the dealership in October this year was 255 units, with a value of $1.9 million, a substantial increase over the 137 units with a value of $980,000 that it held in October last year. Inventory is up this year for several reasons:
1. Kawasaki is having the dealers warehouse their units.
2. Dealership was too low on Suzuki inventory last year.
3. This year, dealership had the ability to add $175,000 more in used units.
4. Dealership added both Polaris and Victory products this year.
For its performance year-over-year through October, the dealership continues to operate well ahead of the first 10 months of 2010. Year–to-date, the dealership has a net income of $164,360, up from a loss of $44,970 for the same period last year.
(It is important to note that January 2010 was the coldest in 40 years, with snow, and on Feb.14 the store closed for about a month. If you remove those two months the gap narrows to 2010, just hitting YTD profit of $4,137.) That’s a gain of $209,330 in profitability over the same 10-month period as last year.
Total sales for the 10 months this year were $4,064,170, up 37 percent from the $2,951,638 recorded in the same period last year. And 2009 revenues were $2,356,105 with a loss of $233,921.
The total revenue increases this year are partly the result of steps Shenk began taking in 2009. Here is his analysis:
1. “If you have a poorly run business, you must fix the processes first. Bad business practices bring bad customers. Good customers won’t put up with bad business, no matter how low the prices.
2. “When you only have a small number of customers and of those very few loyal customers (the ones that bring you profitable business) it looks like this: “You start with 200 customers. When you add 50 new ones in a month, that is a big percentage increase – 25 percent. Now, months latter, if you are still adding 50 new customers a month and you now have 600 customers then the percentage gain is smaller but the money still keeps going to the profit line. “In the second half of 2009 we were getting rid of bad customers and replacing them with good customers and better business practices.
“So, when you compare those first six to nine months of 2009/2010 you don’t see a big increase in gross dollars but you do see a huge increase in profit. Remember, my big focus was getting good customers through Parts and Service that would turn into sales customers down the road (bigger dollars). In 2010 to 2011, we see the bigger dollars starting to come in and we are getting more current inventory that also attracts a better customer.
3. “There is no substitute for A players on your team and A level systems. To win in the new marketplace you must have both. We started replacing C players and installing A class systems and trying to find and retain A players. C players can’t even follow the processes, much less use them as a tool to grow the business.”
Bill Shenk is owner and 20 Group moderator of PowerHouse Dealer services, a dealership 20 Group provider and consulting/training company. He has worked full time in the industry since 1976, and purchased his first dealership in 1987. He started PowerHouse in 2000. He purchased the “Dealer Lab” dealership to show the industry that even in these extreme times, a failing dealership can be turned around by using the proper best practices. Eventually “Dealer Lab” will be used as a real-world training facility for PowerHouse clients across the country. To join a PHD 20 Group and take your dealership to Top Gun status, contact Bill at 877-PHD-0911 or Bill@phdservices.com.
This story originally appeared in the Dealernews January 2012 issue.