DealerLAB: October earnings triple 2012 figures

Publish Date: 
Jan 13, 2014
By Joe Delmont

UNIT MARGINS

Unit sales were up slightly -- 37 units compared to 34 last year. The dealership sold only seven new bikes, compared to 13 in October 2012; however, it sold seven new SxS units, compared to only two last October, and five ATVs, compared to one unit a year ago. The dealership did sell more used motorcycles this October than last -- 14 bikes compared to 11.

 “Our off-road offering was a bit less without Can-Am, but our marketing, inventory levels, sales team and pricing were consistent with last year,” Shenk noted.

YTD sales were about flat with January-October 2012. Gross profit on unit sales for October was $51,899, about the same as that for October 2012 ($51,665). However, YTD gross profit on units through October was $568,710, up 10.8 percent from YTD 2012 2012. That’s an improvement of 10.8 percent.

“When major unit margins are only 10 to 15 percent, a small increase in unit margin makes a big difference to the bottom line,” Shenk explains. “We are now slightly above Top Gun in every segment we track. The increases are only $100 to $200 PVS [per vehicle sold] in most cases, and that seems like a very small difference on a $10,000 to $15,000 transaction.

“But here is how it works. Example A: You retail a  $10,000 unit at only 10 percent gross profit for a $1,000 unit margin; less $200 in flooring, $100 in net advertising, $200 in sales commission, $100 in management labor and $20 in office labor leaves $380 to cover dealership overhead and create a profit.

Example B: You sell the same $10,000 unit at 14 percent ($1,400 gross profit) and control flooring to $100 PVS, and you create $880 to cover overhead and create dealership profits. You can sell 115 units in Example A or 50 units in Example B and the dealership makes the same bottom line.

“In our case, if we sell the same amount for a bit more (much harder than it appears), we double what goes to the bottom line,” he says.

Inventories improved by more than $150,000 -- $2.1 million, down from $2.3 million. New ATV inventory was lower ($256,515 vs. $374,098 in 2012), new watercraft was lower ($263,515 vs. $573,156), and used motorcycles were stronger ($144,695 vs. $195,676). However, accessories inventory was higher than October 2012 -- $305,162, compared to $223,689.

The improvement in watercraft and ATV inventories is because BRP canceled the dealership’s sales agreement for Can-Am and Sea-Doo.

Shenk attributes the accessory increase to Polaris and Kawasaki putting high pressure on the dealership to order more than it is selling, even though the store has no accessory sales display area. “It’s a well-known bad business practice to have the low inventory turns that this practice creates,” he says. “I’m puzzled as to why any OEM would want J.I.T. (Just In Time) for their manufacturing process but want their dealers to have more than 12 months supply on hand.”

EDITOR’S NOTE: The DealerLAB project is a joint effort between Dealernews and PowerHouse Dealer Services and details the efforts to return a Punta Gorda, Fla., dealership to profitability after its purchase by Bill Shenk in 2009. Destination Powersports represents several lines, including BRP/Can-Am/Sea-Doo, Kawasaki, Polaris/Victory, Suzuki and Yamaha. Financial information is sourced from the dealership’s Composite Report supplied by Shenk, prepared for the dealership’s participation in its PowerHouse Dealer 20 Group. In preparing the DealerLAB reports, Dealernews also reviews the dealership’s unaudited P&L statement and balance sheet.  

*ABOUT PHDS: Bill Shenk is owner of PowerHouse Dealer Services a dealership 20 Group provider and consulting/training company.  He has worked in the industry since 1976. Bill purchased his first dealership in 1987 and started PowerHouse in 2000. He purchased the "Dealer LAB" dealership to demonstrate best practices for dealers around the country. Eventually the site 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 Bill at 877-PHD-0911 or Bill@phdservices.com