Dealer Lab: Profitability continues in October

Publish Date: 
Jan 4, 2011
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, detailing his efforts to return Florida Motorsports to profitability. When he took over management in July 2009, the two-store (Naples, Fla., and Punta Gorda, Fla.) network wasn’t in good shape — it lost money in 2007, 2008 and 2009. Shenk and a partner have purchased the Punta Gorda store and have renamed it Destination Powersports to break away from its poor reputation. Shenk no longer has ties to the Naples location.

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.

During October 2010, Destination Powersports in Punta Gorda, Fla., continued to battle inventory and staffing problems, but it managed to post another small profit — the fifth month in the last six that it has earned money. And there was more good news, as positive word-of-mouth comments began spreading among customers and potential customers. The dealership earned $1,941 on total revenues of $332,186 in October. That compares to a net loss of $24,933 on total revenues of $234,538 in October 2009. Sales increased $97,648, or 41.6 percent, while earnings increased $26,874 or nearly 108 percent.

Year-to-date for the 10 months through October, the dealership has lost $44,472 on revenues of $2.95 million. That’s a huge improvement over the same period in 2009, when the dealership lost $233,921 on revenues of $2.25 million.

Meanwhile, unfortunately, the dealership’s problem of poor visibility caused by a backstreet location has been compounded by the construction of a major used car superstore between the dealership and the main street. “We were already back 300 feet on a side street, but we’re now almost hidden because of an 8-foot fence that surrounds the [superstore’s] property,” Shenk says. The visibility problems caused by the adjacent car operation have increased the urgency for Shenk to relocate the dealership, but there are still roadblocks. Even after nearly eight months, the dealership doesn’t have final OEM approval on all of its franchises. “It’s been mostly because of slowness on our part to supply the required information,” he says. This process now is getting higher priority from Shenk, since he has to have all sales agreements in place before moving forward on a new site.

“While it is going to be tough raising the money,” Shenk says, “it is the right thing to do — even in these times and in this marketplace. Our cost of keeping the doors open will only increase by only 10 percent to 12 percent, but our floor space will go from 8,500 sq. ft. split between two buildings on two different streets to 20,000 sq. ft. on a main street with several hundred feet of frontage. In addition, we’ll have another 8,000 sq. ft. we can rent out in a second building.”

Looking at the Numbers
There was a big jump in gross profit in October compared to the same month last year, even though cost of sales (COS) was much higher. GP climbed by $19,907, or 32.3 percent, to $81,482. GP for the year was $833,469, up sharply from $545,578, for the first 10 months of 2009.

The increase in GP for October was caused, in part, by increased revenues in unit sales, parts, accessories and F&I.

Shenk identifies three reasons for the sales increases:

BETTER PEOPLE, including a better sales manager and better parts manager (Tim, the parts manager, had been at the dealership for one full year in December). “I’m also paying a lot more for the current manager,” Shenk says. (Payroll for the sales manager was more than double in October compared to the same month last year, and that trend continues YTD.) “A sales manager is the toughest position to fill in the whole dealership; a salesperson the easiest,” Shenk says. “Many dealers get confused and make bad decisions there. It’s not the salesperson, it is the sales manager.”
INVENTORY is better; that’s why from March to October, sales front-end GP (front-end gross profit is the gross profit on the sale of the vehicle before any profit from F&I) was almost double, and F&I was more than double. “We had barely any good accessories inventory last year — $300,000 of old junk vs. $153,000 this year, of which $60,000 to $80,000 is now good stuff. We need $150,000 of good accessories, but we don’t have the cash,” he says.
CUSTOMER RESPONSE. Says Bill: “We keep slowly winning back new customers. Recently, we had a customer comment that they were seeing our e-mails and knew there was change. But every time he did business here in the past, it was a bad experience. So he kept going to Sarasota or Fort Myers. A friend finally tried us out and had a good experience and then told him he had to try us. He told me he had just had the best service experience of his life with our parts and service crew, and that even the sales guys made him feel welcome. He asked for business cards that he could hand out to his friends. It is a slow go, but over 12 months even in a marketplace 30 percent softer than last year, there is no substitute for good customer service.”

Bill Shenk is owner of, and 20 group moderator for, Power­House Dealer Services, a dealership 20 group provider and consulting/training company. He has worked full-time in the powersports industry since 1976. Shenk purchased his first dealership in 1987 and started PowerHouse in 2000. He purchased the “Dealer Lab” dealership to show the industry that even in these extreme times you can turn around a failing dealership by using 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 Shenk at 877-PHD-0911 or Bill@phdservices.com.


This story originally appeared in the Dealernews January 2011 issue.