Dealer Lab: Starting Off in the Red

Publish Date: 
Nov 1, 2009
By Joe Delmont

Dealernews contributor Bill Shenk of PowerHouse Dealer Services has taken over management of two struggling dealerships (and has an agreement in principle to purchase an ownership interest in the stores) on the East Coast, and has challenged dealers across the country to submit strategic and operational ideals to help convert these stores to profitability

Shenk will implement new business procedures based on suggestions made by the Lab's dealer members. Lab members will witness Shenk's experience through personal blogs, videos and photos on the Dealernews website.

This initiative is exclusive to Dealernews and the Dealer Lab's Group members.

Editor’s note: The dealer lab project is a joint effort between Dealernews and PowerHouse Dealer Services run by former dealer Bill Shenk. He’s been helping dealers improve their operations for 10 years as a consultant. In July, he began putting his ideas into practice by taking over management of Florida Motorsports, which has stores in Naples and Punta Gorda, Fla. The two-store network wasn’t in good shape, losing nearly $1 million in 2008.

Shenk will share data as he works to bring the business back to profitability. The reports will cover all major operations, including but not limited to: new and used unit sales, service, parts, P&A, F&I, personnel and marketing. Dealer Lab reports will be transparent; they’ll contain the good, the bad and the ugly.

The first financial statement from the Naples store (right) shows how much work has to be done. Losses at this store for August and for September were about the same, slightly more than $21,000. The YTD loss through September 2009 was more than $150,000. But Shenk says the opportunity was there to convert the $21,000 September loss into a $22,000 profit. This 30,000 sq. ft. location had sales of $11.9 million last year, but had operating losses of about $582,000. It carries Honda, Yamaha, Kawasaki, Suzuki, Sea-Doo, Can-Am and Spyder brands. There are 21 employees.

The Punta Gorda multiline store is smaller, only 10,000 sq. ft. and seven employees, but it had nearly $8 million in sales last year. It lost, however, about $380,000 on operations. The store will be addressed in future reports.

A reason for the September loss in Naples was that total payroll for sales, P&A and service was a whopping $20,012 over budget. That’s a problem, but Shenk thinks it’s part of the turnaround process: installing new systems, training staff to implement the systems and then executing the systems on a consistently efficient basis. “You can’t just slash payroll,” Shenk says. “You have to get the right staff, train them in the right systems and then help them execute the systems. That takes time.”

Two other factors hurt September profits. First, P&A gross profit per vehicle sold was $236 light. So there was the potential to earn an additional $10,125 (after payroll). Second, flooring costs were $204 per unit sold more than the corresponding average figure for the top dealers in Shenk’s 20 groups. “That means we paid $13,464 too much for flooring,” notes Shenk.

When he considers all three factors, Shenk comes up with $43,601 in lost sales opportunity just on the business the store did. “We can do more gross business in this marketplace,” he says. “Even with our September operating loss of $21,281, we had a chance to post an operating profit of $22,320.”

Shenk says that through operating improvements, the two stores had the potential to earn a profit of $41,733. Overly optimistic or hard reality? We’ll see.

Correction: In October, we mistakenly reported that Shenk had bought Florida Motorsports. In July, Shenk took over management of the stores. He has an agreement in principle with the owners to buy an ownership interest in the stores.

This article originally ran in the Dealernews November 2009 issue.