Dealer Lab: Service department boosts store profits

Publish Date: 
Aug 1, 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.

The service department at Destination Powersports generated nearly half of the dealership’s $29,000 in net profits in May. Service contributed earnings of $14,338, or 49 percent of the store’s total net profit. That’s a huge jump from last May when service earned only $1,886, or 16 percent of the dealership’s net income.

Every department now is running at or above Top Gun averages. The dealership is making money, and has more opportunities in every department.

The service department’s total earnings contribution for May is also up (slightly) from April, when it posted $16,400 in earnings, 31.5 percent of the dealership’s total net earnings. For the first five months of 2011, earnings from the service department more than doubled compared to the same five months in 2010: $65,277 versus $31,029 last year.

Service productivity has improved greatly. Last year, the six service employees generated $4,040 per employee for a gross profit per employee of $865. But this year, those numbers skyrocketed. The department’s 5.5 employees each produced $7,038 in sales and $3,309 in profit.

Technicians also posted strong productivity gains: the three techs posted $12,904 per person, more than double the $6,060 posted by each of the four techs in 2010. Gross profit per technician in May was $9,455, which is nearly three times better than the $3,223 posted per tech in May 2010.

WORKING TO ABILITY
So why the big improvement?

According to Bill Shenk, the service department adheres to the following practices:

• It complies with the PowerHouse Dealer (PHD) services’ “A-B-C” breakdown of work difficulty and tech ability. “We do not allow a tech to attempt a job above his ability/experience,” Shenk says. “Absolutely no O.T.J. training at Dealer Lab with our techs. I will not risk messing up our time-to-completion commitments with our customers.”
• Service is 100 percent compliant with its PHD services job flow board, which boosts internal communication efficiency.
• Service writers have strong people skills and have stopped “selling at the curb,” according to Shenk. “Now, we’re upselling while the original work is being performed. This makes the customer feel more comfortable with our service operation.”
• The service manager “has a strong work ethic,” he says. “He is our fourth service manager in less than two years, and the first to listen to and wholeheartedly attempt to implement all of our PHD service processes.”

The dealership’s service department brought in 272 customer jobs in May, compared to 176 in May 2010.


MORE MAY NUMBERS
Sales contributed slightly over $5,000 to overall net profit in May, and the F&I operation added another $8,180. Parts and accessories lost $811. “We are strong on system management, but weak on salesmanship and too small to have team members dedicated to only one function,” Shenk notes. “However, we are growing, and as far as profitability on a per-vehicle sold (PVS) basis [goes], we are above Top Gun dealers.”

Year to date, the average Top Gun dealer lost $43 PVS. Destination Powersports lost only $16 PVS.

The store’s counter/floor sales continue to improve at a steady clip, which is the most important indicator of the health of a P&A department. Average ticket is improving as well as line items per ticket. “We have grown to a point where we were finally able to add a half P&A ‘sales’ position,” Shenk says. “The first one did not have the ability to meet our objectives and was replaced after two weeks. The replacement is showing signs of being the right person for that position.”

Total revenues for May 2011 hit $463,111, down from the nearly $700K posted in April but up from the $320K from May 2010. Total 2011 revenues January through May: $2.4 million, 77 percent higher than the $1.36 million posted during the first five months of 2010.

In May the dealership sold 45 major units for $350,651 in sales, compared to May 2010 when only 36 major units were sold for $225,345. Still, May’s unit sales were down from the previous month when the dealership sold 68 vehicles for $547,000. April is the peak month for vehicle sales, Shenk explains. “The snowbirds are still here. It’s probably our single best opportunity of the year,” he says.

CHALLENGES
“I do have several concerns that I believe are keeping us from our potential and costing us profit dollars,” Shenk says. “We still have lost opportunity by not having the manpower and training to properly prospect our customer base.” Also, “though our pre-owned inventory is better than last year, we still do not have the proper mix of pre-owned inventory. Therefore, we are not attracting the maximum amount of new sales leads.”

Reduced flooring costs continue to boost the bottom line. Flooring was almost $4,000 less than in May 2010, and $16,537 from January-May 2011 versus more than $51,000 during the same timeframe last year — that’s an improvement of $34,500 that drops directly to the bottom line.

Smaller inventory of new models and reduced flooring costs from lenders helped. In March 2010, the dealership secured 100 percent OEM flooring for new units. Also, the dealership improved its inventory sell-through stats; whereas the average number of days in inventory two years ago was over 800, today vehicles sit for an average of 126.53 days; this places a large portion of inventory on program, or free flooring.

The dealership continues to do more with a staff of 13, compared to 14 last year. With one less person, the store generated $124,306 in additional sales and $17,506 in additional net income. It sold nine more units in May and generated $77,922 sales per employee, improving gross profit by almost 35 percent over May 2010.

This story originally appeared in the Dealernews August 2011 issue.