The dealership’s performance improved in March to the point where it posted the smallest losses in the eight months that we’ve been working with it. For the month, the dealership lost $5,405 on total sales of $320,537. The gross profit for the month was $81,115. In the first quarter, the company lost $54,014 on total revenues of $720,079.
Since new accounting systems and procedures were introduced in July 2009, we can’t compare year-over-year numbers for March and for the first quarter.
Even though there was improvement in March, Shenk says it’s going to be a couple of tough months of rebuilding after having the store closed unexpectedly for two weeks in February.
Finance was significantly below goal in March. “We financed only 20 percent of our sales, resulting in poor finance income of only $284 per vehicle sold,” Shenk says. “We should be at double the percentage financed and double the gross profit per vehicle financed.”
There was strong evidence, he says, that March brought out only the poorer credit risks after word got out that the store was closed. One indicator of value shoppers, Shenk says, is that the store sold more used than new motorcycles.
“In defense of our F&I department,” Shenk says, “the OEMs were tough on credit. We had a gentleman who wanted to buy a new Yamaha Star motorcycle. He had $2,000 down, owns two homes — one is in Florida, the other out of state and both are mortgage free. His credit score was 800, but he didn’t meet Yamaha standards and was denied financing through the factory program.
“That being said, we know we still left $10,000 in profit on the table in F&I.” The bottom line here is that the whole $10,000 would have stayed within the company, and that alone would have resulted in a profitable month. Service was the strongest department in March, at $770 in labor dollars per vehicle sold (PVS) and six repair orders, or jobs completed, for every unit sold. Service also was the closest to budget on costs, contributing $10,968 after payroll. By comparison, P&A was at $8,964 and sales/F&I (after payroll and flooring) was at $11,603. Note: Sales should be more than parts and service combined.
“We’re making progress,” Shenk says. “We’re getting a structure in place to handle the business, to handle the increases we need. Every department is ready to handle more than what we are doing; that’s important for growth — be equipped to handle more volume than you’re doing today.”
Expanding An E-Commerce Program
The dealership has been burdened with excess inventory of units — current and non-current — as well as a large amount of PG&A items since Shenk took over management of the store in July 2009.
A representative of eBay visited with Shenk and his key managers for one day in the store during April to train the staff on the features and benefits of doing business on eBay. The result of that meeting is a two-month program that is being developed and implemented in May and June. “After that, we’ll evaluate and decide our next steps,” Shenk says. “It’s OK if we don’t make money in May because we’ll be developing and fine-tuning our processes. Our costs will be up at first; I’m not concerned with that because it takes money to build a system. But in June, we have to be profitable with the eBay program.”
Based upon his discussions with eBay, Shenk and his team learned that eBay is a price-driven market, and that you can get your price only for very specialized items. That means you have to spend a lot of time checking and adjusting prices. That’s a hidden labor cost that has to be calculated.
Other costs, in addition to the 5-cent eBay listing fee, include 8 percent to 9 percent eBay commission and processing feeds for PayPal or credit card companies. Those fees add another 12 percent or so to the cost of sales. “EBay can get me customers,” Shenk says, “if I can get specialty products or products that give me a price advantage over other dealers.”
Another important lesson he learned from conversations with the eBay rep: Each transaction has to stand on its own; it can’t be a loss leader. “You’re not setting up a future transaction,” he says, “because many of the customers are out of my market. So I have to make money on that transaction. If the customer is in my market, I can break even or even lose a little bit if I have a chance of selling them their next bike. That’s different from brick-and-mortar operations.”
Here’s Shenk’s plan moving forward through May and June:
• First: designate responsibilities. Dino Dentino, general sales manager, is taking charge of unit sales, and Tim Patterson, P&A manager, is handling small goods.
• Second: start selling. This includes collecting as much inventory as possible for Internet sales and pricing those items for maximum profit. In addition to searching the store for slow-moving small goods and targeted units, Shenk is negotiating with a large distributor to purchase PG&A items in volume, at a discount, that he can sell through eBay. The volume discounts will allow him to price competitively, and eBay will allow him to generate a new, profitable, revenue stream. In effect, he’ll be creating an uneven playing field against competing dealers who have to purchase the same items at higher costs because they buy in smaller volumes and sell only through their brick-and-mortar stores.
• Third, and perhaps most importantly: figure out a cost structure; develop a system to track labor and other related costs. But, as Shenk notes, it takes money to track things. It’s pretty easy, he believes, to track fees and gross profit, but figuring the real costs is tough. Tracking real costs for labor to upload information and then to process orders will be difficult. Initially, employees won’t use time sheets to track eBay labor costs, but Shenk suspects he will have to go in that direction.
“We don’t know how to use this tool [eBay] yet,” Shenk says. “It’s not just having the tool; you have to know how to use it to make money. We’re not quite there yet. But we’ll see if we can get there.”
Next month: more on e-commerce.
This story originally appeared in the Dealernews June 2010 issue.