Dealer Lab: First quarter profit climbs 18 percent

Publish Date: 
May 23, 2012
By Joe Delmont

THE DEALER LAB is a joint effort between Dealernews and Bill Shenk/PowerHouse Dealer Services, which purchased a Punta Gorda, Fla., dealership in 2009 to return it to profitability. Financial information in this report is from the dealership’s Composite Report 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 Dealer LAB reports, Dealernews reviews the dealership’s unaudited P&L statement, balance sheet and its composite report.

Destination Powersports posted a solid performance in first quarter ending March 31, with revenues climbing 12 percent and net profit increasing 18 percent over the same period last year. But clouding this accomplishment are the store’s staffing issues, which have caused problems in Service and may pose challenges in other departments.

“We are struggling in all three departments with having enough trained, motivated staff,” owner Bill Shenk says. “If our managers don’t get this fixed soon, we will see the negative impact several months from now.”

On the bright side, March was another good month for the dealership, with net income of $29,540 on total sales of $615,254, compared to net income of $28,662 on revenues of $449,959 in March 2011. Sales jumped 36.7 percent and net income improved by 3.1 percent. By comparison, ADP Lightspeed reports that revenues in March for dealers located in several southern states, from Florida to Texas, increased by 13 percent. So the March sales increase at Destination Powersports was nearly three times the ADP dealer average.

First-quarter performance looked even better when compared to unit sales throughout Florida. Unit sales for the quarter climbed 42.2 percent from Q1 2011, with 155 units sold versus 109 last year. New motorcycle sales almost doubled those during first quarter 2011 — 45 to 26 — and used motorcycle sales increased from to 45 from 39 units. Revenues from unit sales increased by 16 percent, making it a “million-dollar quarter” — $1,078,784, up from $930,061 last year.

In March, unit sales revenue at Destination Powersports climbed to $493,804, up $166,337, or 50.8 percent, from $327,467 in March 2011.

Nearly half (17 of 36) of the motorcycles sold in March were used units; in March 2011, the dealership sold 18 used bikes and 11 new ones. The dealership sold 46 used and 45 new for the quarter, versus 39 used and 26 new during Q1 2011.

Shenk says the dealership has done a “really poor job” of prospecting for and purchasing pre-owned inventory thus far in 2012. “Our inventory is like a yo-yo, going up and down,” he says. “And often, when it has been up, we are still left with many holes in certain segments of the market, and in other segments we have duplicates. This is another strong indicator of reactive, not proactive, sales management.”

PROFIT PICTURE MIXED
Gross profit on unit sales was up sharply in March, $63,143 compared to $53,379 last year, an 18.3 percent increase. But gross profit on unit sales as a percentage of sales in March slipped a bit when compared to March 2011, dropping to 13 percent from 16 percent last year. Yet profit per vehicle sold (PVS) improved, climbing more than $600 per unit: $8,663 in March 2012 versus $8,051 in March 2011.

This mixed-profit picture is directly attributable to not having enough trained sales staff “to really build excitement and value with our customer opportunities,” Shenk says. “The result is more deals are price-based.”

Inventories of motorcycles were much stronger in March than they were in March 2011. The dealership this year had 109 new and 23 used motorcycles, compared to only 61 new and 23 used bikes in March 2011. Motorcycle values were more than $1,000 higher this year: $8,647 per unit (for a total of $942,539) compared to $7,595 per unit ($463,348 total) in March 2011. The increase was greater on the used side, with an average value of $4,887, compared to last year’s average value of $3,533.

Inventories of new ATVs and SxS vehicles also were up sharply in March, year-on-year. Destination Powersports in March carried 27 SxS units, compared to zero last March, and 50 new ATVs, compared to 42 last year. The improvement is partially due to the addition of Polaris to the lineup.

With more unit sales in March, F&I gross profit also increased, $26,047 compared to $16,639 in March 2011. Even though F&I revenues are up in total dollars and PVS ($440 from $405), F&I continues to be weak on a PVS basis. “We are at least $150 PVS below ‘great,’ and that would have created another $8,850 in gross profit for the month, increasing the team’s payroll by $3,540 and profit to the bottom line by $5,300 — or 20 percent more dealership net profit,” Shenk says.

SERVICE RE-SETS
Problems continue in the Service department. Total labor revenues dropped from $30,282 in February to $25,722 in March. By comparison, service revenues in March 2011 were $41,385.

“I had been concerned with how service was handling our growth,” Shenk says. “Things began falling through the cracks. Then a tech cut off his finger, and we lost 30 percent of our production capability. Pow! Everything unraveled.”

The service manager and one of the service writers resigned. “We just got a replacement on the writer position on April 14, and on April 20 we were able to get a new service manager on the floor again,” Shenk says. “We were over a month without a service manager.”

Shenk says the injured technician is back at work, performing light duty. Shenk’s next steps are to get the new members “unconsciously competent” with the store’s systems. “It’s easier said than done, but if it was easy, everybody would be doing it,” he says.

The Service department’s systems have been key to the dealership’s successes over the last three years. “I have seen so many dealers take more than a year to get any real change in service,” Shenk says. “This is such an important lesson. In 2009, we took the staff that was already there, and increased production and profit by a large percentage with nothing but systems and absentee leadership.”

Once more qualified employees were on the job, Service profitability and productivity exceeded PHDS Top-Gun levels. “Now, we have a slip in our people and things [dropped] by a huge percentage, but we’re still way better than early 2009 when we lacked systems and had only C-level players,” Shenk says. “Now, because we have the systems in place, you watch: We plug people back in, give them time to become efficient and fix the issues created by the previous staff, and within 60 days we will be beyond Top Gun once again. We’ll be doing in 60 days what most cannot do in a year.”

Bill Shenk is owner of and 20 Group moderator at PowerHouse Dealer services, a dealership consulting/training company. To join a PHD 20-Group, contact Shenk at 877-PHD-0911 or Bill@phdservices.com.

This story recently appeared in the Dealernews June 2012 issue.