The recession began in late 2007, but high gas prices the following season helped sustain two-wheeler sales. Plus, the economic downturn hadn’t quite found its way to the Midwest and other areas.
The 2009 selling season was different. The latest MIC numbers show that new-unit sales were way down for the majority of dealers. Many dealerships and aftermarket suppliers that were overly leveraged have gone out of business. The landscape is changing, and it will continue to change next year.
Today, the advantage goes to dealers who are flexible and have cash. Who experiment with different systems. Who watch their numbers closely, and aren’t afraid to change. Who are even willing to admit a change was a mistake, and revert back.
Such a dealer is Greg Donahoe, who has been running Heartland Honda in Springdale, Ark., for the past 14 years.
I visited the Level 5 Powerhouse dealership two days before Thanksgiving. I was in the area visiting family. Heartland has been a Top 100 dealer for two years in a row, so I jumped at the chance to see the dealership and have quick chat with Donahoe.
What I got was so much more. Unlike some close-minded dealers, Donahoe understands that we’re all in this thing together. A stronger dealer body is good for all dealers. Accordingly, he was willing to share how he downsized his store, as well as his experience with specific marketing and software vendors. This is when I realized that he was the poster child for the change-friendly dealer.
Well-versed in the industry, Donahoe also spoke freely about the advantages — and disadvantages — of being a Honda Powerhouse dealer. My timing couldn’t have been better. Just two weeks prior, he had participated in a symposium for Level 5 Powerhouse dealers at Honda headquarters in California. Apparently, these premier dealers haven’t been getting everything they expect. The symposium, Donahoe says, was corporate’s sincere effort to listen to these complaints, as well as address concerns about low margins, which have plagued Honda dealers for years. Donahoe says Honda asked dealers to create a list of demands, then prioritize. Donahoe had just faxed his new list before we talked.
In short, Donahoe gave me a peek into the Honda Powerhouse world, and provided me with gristle for a dealer profile emphasizing the importance of willingness to change.
It was all more than I could accommodate in one article, so I’ve split it up into three, this one and two others:
But before you click over to those stories, learn how Donahoe became such an expert, and how he’s using his expertise to adapt to lower demand.
A Well-Timed Investment
Donahoe’s parents own Heartland Honda. In 1996, they bought a single-line Honda store in business since the mid-’60s. Both parents were full-time accountants. They along with a partner bought the store as an investment.
At the time, Donahoe had just finished a stint working for a Chevrolet dealership. “I was done with that,” he says. “I was going to move onward and upward, and this opportunity arose. My parents said, ‘Do you want to run this?’ Not knowing any better, I said, ‘Sure, why not?’”
Before the car dealership, Donahoe had attended the University of Kansas. He has a degree in communications with a minor in economics. But he credits his know-how to intensive classes Honda provided soon after he began managing the store. Industry consultant Gart Sutton taught the classes. “He also was a moderator for a 20 group that I was in for several years,” Donahoe says. “Then I switched from him to Bill Shenk, and I’ve been with Bill Shenk since.”
But Donahoe may soon drop Shenk. Honda has created a BIG (business improvement group) 20 group just for L5 Powerhouse dealers. Donahoe says about half of the 44 L5 dealerships have joined. The first meeting took place at the Powerhouse symposium. “I’m pretty excited about it because for once in the lifetime of this business, it’s going to be an apple-to-apple comparison. We all face the same issues. We’re all L5 single-line Honda dealers, whereas the other groups, it’s multiline this and that.”
Donahoe may have enjoyed getting inside Garton Sutton’s head, but he was butting heads with his parents’ business partner, who was co-managing the store’s day-to-day operations.
“It just didn’t work very well,” Donahoe says. “So we bought him out in ’97, and he went and bought the competitor 20 miles north of us. So we went from partners to competitors overnight. I guess he sold out three or four years ago, but we consistently whipped his ass.”
Anyone familiar with annual sales statistics will realize that the Donahoes couldn’t have timed their investment better. “We knew no wrong,” Donahoe admits. “We just rode the wave. We went from a million dollars in revenue in ’96 to $15 million last year.” Donahoe’s brother also makes a living from the store by running the parts-and-accessories department.
Things were going great. Then came 2009. “Now we’re realizing, hey, this isn’t so easy,” Donahoe says. “We’ve taken a huge hit this year.”
Which leads us to how he’s downsized.
Going Commission-Only; Cross-Training
At the end of last year, Heartland Honda began performing a major overhaul of its payroll system. Donahoe wanted to make it so that it couldn’t be affected as much by economic ups and downs.
“Basically, we made most employees commission-only as a percentage of the gross,” Donahoe explains. “So when we go up, they go up; we go down, they go down. And that worked pretty well. But some of the people who were not on that pay plan had to go. They got cut last week.”
The dealership is down to 30-something employees after employing about 40 in early 2008.
Business for the service department is also down, so Donahoe laid off one of his service technicians, giving the remaining four techs more hours.
Donahoe is cross-training as well. “We let go of one our service advisors that wasn’t commission-only, and cross-trained some of our P&A people — we’re a little bit heavy there — so that they can go back and write tickets at the peak times, in the mornings and afternoons, as need be.”
At least one element of the restructure didn’t require any training, just a reversion back to earlier times. “We took one of our girls that was in P&A,” Donahoe says, “and shifted her back into the assistant parts manager roll, where she will do more shipping and receiving, merchandising and ordering. We laid off a guy who been working here for over six years, but he was heavily salaried and sucking a lot of the money out.”
Donahoe hasn’t enjoyed this lean-and-mean approach. “We’ve tried to maintain the best we can,” he says. “But what are you going to do? Business just isn’t there.”
Continued on page 2
Heartland Honda respects its employees, Donahoe says. “We treat our employees right. Like today, my mom is cooking Thanksgiving dinner for every employee here,” he says. Both customers and employees receive free lunch on Saturdays.
Donahoe’s mother was cooking the meal in a full-size kitchen in the employee lounge. The spacious break room was just one perk received in 2005 when the store relocated to a new Tier 5 Honda Powerhouse building. Overall, the store went from 12,600 sq. ft. to 27,500 sq. ft. Its new digs also benefit from exposure to a major highway.
Layout, Vendors, Sales — and Lots of Photos
The employee lounge is the largest room of a wide mezzanine above the main showroom. The encircling level is walled off in places, but windows and breaks in the wall allow employees to keep an eye on things.
“The previous employee break room,” Donahoe says, “was just like a 4 by 4, just tiny. And right across from it was the bathroom, so you were sitting there eating while … it just wasn’t too pleasant. So when we did this, we said, ‘You know, we’re going to make a nice place where people can get away and eat lunch. And then we do our managers meetings in the conference room every Thursday.” (The break area includes a long, glossy table.)
As far as the rest of store’s layout goes, instead of testing my powers of description, I’ve posted a wide selection of photos below this story. If you’ve ever been into a Level 5 Honda Powerhouse dealership, you may have an idea of what it looks like.
Not that Donahoe goes strictly by the book. Level 5 regulations, for example, require several 8-foot-by-8-foot promotional panels to stand near the front entrance. But Heartland Honda has only a few. “In fact,” Donahoe says, “we had more, and we’ve unbolted them and taken them down. So we’ve kind of bucked Honda’s deal with what we’re doing, but our numbers are good enough I guess they don’t care too much.
“A lot of their displays block the view,” Donahoe explains. “You’ve got to be able to see through here. Plus, those things aren’t selling anything. As you know, we’re in Wal-Mart world [corporate HQ is nearby]. Wal-Mart measures every square inch on how much revenue it’s producing, and we try to do the same. This is very valuable floor space. It’s got to generate revenue.”
At the time of my visit, the front of the store displayed dirtbikes, ATVs and a seasonal hunting display (the photos below, on the other hand, were taken during the streetbike season).
Not too much farther into the store is a prominent area dedicated to Honda Power Equipment. “Generators are our saving force,” Donahoe asserts. “There’s good margin in it. There’s high demand in it. It’s a great product, so thank God we have Honda generators.”
Besides dealers in areas susceptible to hurricanes, ice storms and other natural disasters, Donahoe points out that most areas can sustain generator sales simply due to camping and tailgating. “You go to an SEC Saturday game and then go to the tailgating, you’re going to see EU2000s all over the place,” he says.
Also having sold well this past year, Donahoe says, were Gold Wings, trikes and (believe it or not) watercraft. “The high-end products that we have were the best sellers, but that’s probably because people with the money can still buy.”
But most unit sales are down, especially streetbikes and scooters, both of which benefited last year from gas prices. “Last year we had a truck with 35 scooters, and every one of them was sold,” Donahoe remembers, adding that the store sold more than 100 scooters during the year.
Before the recession, Heartland Honda was moving about 1,200 new units and 600 used ones per year. Although sales of used units are down also, there has been a slight shift toward them. “We’re running right at that 0.30 to 0.40 ratio,” Donahoe says. “They have way better margins. But they’ve gone down with everything. There’s not as many customers coming through the doors, point blank.”
As units have fallen, so have P&A sales — though the store’s been selling lots of Honda hard parts through a 50 Below website (see part two).
Off-road unit and apparel sales, of course, have been falling for years. When one of Heartland Honda’s biggest brands, Fox Racing, began making demands found unreasonable by Donahoe and his brother (i.e., the P&A manager), they dropped it. “I think Fox has lost its mainstream appeal a little bit,” Donahoe says.
To compensate for the loss, Donahoe brought in some Answer and MSR stuff. In fact, of the two major distributors, he has a strong preference for Tucker Rocky. “We certainly buy from PU on the things that we have to,” he says, “but I don’t care for PU’s policies per se. Their returns are ridiculous.”
He respects Tucker’s more liberal approach. “We’ll take some gambles and risks with them, knowing that they’re willing to take it back,” he says. “We try to help them, and they help us.”
Which is just the type of relationship you’d guess would be of value to a man who likes to experiment.
But I doubt Donahoe holds grudges when it comes to business. As you’ll learn in part two, he’s dropped a few marketing vendors only to return later. Who knows, given a change in popularity or policy, he may someday even restock Fox Racing apparel or buy more stuff from Parts Unlimited.
As I said earlier, Donahoe is willing to change, and his business is better off because of it. After all, his family bought the store primarily to make money.
Not that running Heartland Honda is drudgery for Donahoe. He grew up riding dirtbikes (“In Arkansas it’s what you did”), and he owned a streetbike from age 13 until college. “Then I never really rode until I got back into the business,” he says. “We looked at it as a business opportunity that would be fun and something our family could do. But we definitely look at the numbers every day — and try to manage by the numbers.”
Below: The view when you first walk in.
Below: In this picture, on the upper-right wall you can see the windows of the employee breakroom. Sorry, no pics of the breakroom itself.
Below: The customer lounge featuring a TV, video games, lego toys and other items for kids. The store also has Honda's SMART virtual trainer for new motorcycle riders.
Below: Heartland Honda's service department has two entries. Customers can come directly from outside, or through the showroom and parts department to the service desk pictured here. The desk is set in a corner so that customers have room to show employees their needed repairs. This area is also used for delivering units. The service department itself (not pictured) has two lines of lifts, four on one side and five on the other, followed by each technician's toolbox. The department also has a complete wash bay and detail area. Heartland has a 5,000 sq. ft. on-site warehouse for storing units, and, in the retail store, a room dedicated to tires.