Top 100 Dealers Tackle the Economy Head-On

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Fearing the dealership mortgage payment. Watching customer counts decrease. Praying for flat sales. Staving off staff cuts.

These are just a few key issues keeping dealers up at night. With each new day bringing further troubling news about the economy, Dealernews wanted to know what challenges Top 100 dealers were facing for the coming year and what plans they had to address them.

Overwhelmingly, the seven dealers surveyed are optimistic about their businesses but are also realistic enough to be making changes no matter how painful. Each also keeps an eye on the future with the steps they are taking now:

Taking over janitorial services. Cutting back on staffing. Installing efficient light fixtures and equipment. Adjusting order volumes for new units and aftermarket products. Consolidating positions. Zeroing in on new revenue centers.

All are looking for measures that can be quantified.

Participating in our December 2008 discussion: John Beldock, co-owner, Erico Motorsports, Denver, Colo. Dile M. Brown, owner, Knoxville Harley-Davidson, Knoxville, Tenn. (not pictured) Bill Hearne, owner, Outdoor Motorsports, Spearfish, S.D. Tom Hicks, owner, Southern California Motorcycles, Brea, Calif. Bob Ladd, owner, Shenandoah Harley-Davidson, Staunton, Va. Nathan Reeves, general manager, RevSport!, Bloomington, Ind. John Schaller, owner, House of Harley-Davidson, Milwaukee, Wis.

DEALERNEWS: What economic issues are keeping you up at night?

BELDOCK: I am concerned for everyone out there in the job market. I don't want to sound naive, but I believe fear is driving many of the decisions that companies are making and it is rippling through the entire system as folks 'hold' on economic moves.

BROWN: Customer confidence. There are a lot of uneasy feelings like, 'Will I have a job?' 'Will I have a downturn in hours/wages?' 'Will I be able to afford my lifestyle?' There is still a lot of want but low confidence in the ability to continue as desired.

HEARNE: Daily traffic counts are at the lowest level we have had since January 2007. We are not getting enough opportunities to do business.

HICKS: The declining economy is scaring people to hang onto their money. Traffic flow is down and people are much tighter with their money.

LADD: Making the mortgage payment on the dealership. This is of course brought on by the slowdown in sales. I also am very concerned about having to make further cuts in staff, as my staff and I are dedicated to one and other.

SCHALLER: Right now I am sleeping fine. I am concerned about 2009 in general. Our bike sales have been down for the last two months, but right now we are doing OK, meaning that November will be flat with last November and, though it is very early, Christmas sales are also OK compared to last year.

Which of your departments will be hardest hit in 2009?

BELDOCK: New-unit sales volume is most definitely the place where we predict the greatest slowdown. We have taken a very close look at our forecast and have ordered accordingly.

BROWN: The sales department will be hit the hardest. That is 60 percent of total income to start with, plus all the residual that comes from sales. The concentration now is to make sure that if the customer is wanting to fulfill their needs, we take advantage of the need and do all we can to make it a pleasant happening.

HEARNE: New unit sales. We're trying to broaden the customer base that we visit with.

HICKS: Motorcycle sales, since 'the money is in the metal.' This will hurt us the most. Grass roots marketing! Increase our outside presence with more outside shows, events and displays. We're tightening our own belts by taking a strong look at our expenses and costs.

LADD: F&I, motorcycle sales. For F&I, seek alternative institutions for financing. For sales, reduce staff, offer greater incentives to buy.

SCHALLER: Motorcycle sales and F&I. I expect service to do better than last year, with MotorClothes and parts about the same and accessories probably down a bit. To help in bike sales, we are continuing to strongly monitor logging of visitors and follow-up calls. We are going to slightly modify our sales process in the spring. We will add a few people who will principally be responsible to greet visitors on our sales floor, with the expectation that we will move closer to greeting 100 percent of our visitors. We also are expanding our motorcycle Internet sales footprint.

Other than seasonal reductions, have you cut backon staffing?

LADD: Yes, by about 10 percent.

BELDOCK: We actually hired five people in November. Two were new positions altogether. I don't typically reduce much in the off-season as I feel my team needs food year 'round.

BROWN: We have not and do not expect to reduce employees. We did adjust levels this past season (April through September '08) and are watching personnel expenses closely. We must have a certain level of employment to maintain our current level of operation.

HICKS: I will do my best to keep every staff member employed.

SCHALLER: We are not employing our rental and Rider's Edge staff over the winter. We let go one employee who was underperforming, and laid off one parts person who we expect to call back in the spring. We have reduced hours in departments rather than lay off more people. We also will do our normal seasonal rotating layoffs to avoid actually letting good people go.

Where are you cutting back?

BELDOCK: We have spent the last 18 months looking very closely at all expense line items, reducing where we can. We greatly reduced flooring costs.

SCHALLER: We are cutting back expenses in non-customer-facing areas. This is probably something we should have been doing all along. We are re-negotiating with all of our suppliers to try and reduce those costs by 10 percent to 20 percent. We also have begun winter hours earlier this year and will probably continue them a bit longer to, again, reduce staffing costs.

HEARNE: Support activities. We have cut building cleaning services, lawn care, window washing, etc. by 50 percent. We've eliminated holiday party and birthday celebrations.

HICKS: Some Internet advertising costs and, unfortunately, some Christmas expenses.

LADD: Store hours, employee hours and not replacing the general manager. These three areas have allowed a 15 percent reduction in wages. Benefits have been reduced by $2,500 a month. Personal income has been reduced by 30 percent. We decreased company travel by 50 percent.

Where are you focusing to generate more revenue?

REEVES: E-commerce.

SCHALLER: We are expanding Internet sales, and expanding our rental and tour business because of the Harley-Davidson Museum opening. Though we have not seen much increase thus far, we are hopeful that it will bring more tourist and rental traffic to our area.

BELDOCK: We have been concentrating on the P&A and service businesses.

BROWN: Service area and general merchandise.

LADD: Prepaid maintenance, service specials, gift cards with motorcycle purchases to be used in general merchandise and P&A departments. Possibly working with Harley-Davidson to offer no payment, no interest for first 90 days of ownership.

HEARNE: We're focused on each opportunity and refining the existing process rather than looking to go into other product areas.

What efforts are you making to run more efficiently?

BELDOCK: We got a lot more efficient through better systems, recruitment and training, running 2008 with about 30 staff where it took closer to 40 in 2007.

LADD: We are cleaning the store ourselves, which saves $1,000/month. All thermostats are computerized. I routinely check to be sure that we are not wasting energy or money. Outdoor lights are not left on as long as in previous years. We are only maintaining the building. No additions or improvements for now.

REEVES: We have been installing new technology lighting throughout our store that is extremely efficient. Little things like energy use can really add up on the bottom line for a store like ours with so many lighting fixtures.

SCHALLER: We have consolidated some positions. We have cut, over the last six months, our utility and insurance costs slightly, we turn off computers and lights, we have motion sensors on all areas that are not constantly used. All of our bathrooms use motion sensors for toilets and sinks. We are beginning to do some things in-house such as janitorial duties.

How have your buying patterns changed?

REEVES: We are focused on stocking items that move within the first couple of months of being in our store.

BELDOCK: We only purchase what we need to drive the business forward.

BROWN: We are rethinking our needs. Do we need to have the extra units on the floor for potential customers? Should we order two of something, or one? In other words, we're watching inventory turns very closely.

HICKS: We now have the apparel vending rights for Ducati at many events and now buy an incredible volume of apparel.

LADD: We're not overly customizing motorcycles.

Are you cutting back on ordering vehicles and aftermarket products?

SCHALLER: With the change in Harley's allocation system we will not necessarily cut back in ordering because, if the system works, it will cut us back if sales cut back. About three years ago we significantly began to reduce inventory in general merchandise and P&A. We now carry about $300,000 less inventory ... which freed up cash and space. I don't think there is much more we can do without creating supply and sales problems.

BELDOCK: Yes (on) vehicles, no (on) aftermarket.

HEARNE: Yes and we are canceling future orders if revised projects show we will grow inventory to undesirable levels (vehicles). P&A inventory by about 15 percent.

What would you ask of your OEMs to help weather these rough economic times?

BELDOCK: Flooring is a big expense. Any help redistributing slow-moving inventory is always appreciated. Piaggio has been putting in many new dealers and that has definitely not helped our cause much.

BROWN: The manufacturers have to make decisions further in advance than dealers, so their product is in the pipeline now. The main concern I have is to assure what is in process is saleable at the price expected by them. If not, shut the door now before it gets crazy with discounts, rebates and fire sale considerations.

HEARNE: Price reductions to help equate demand with supply. Keep the field inventory low to support prices.

HICKS: More advertising and programs to bring people into the door.

LADD: Advertise the fact that H-D holds 49 percent of market share, and the value is in our product as well as the quality.

SCHALLER: Harley should advertise the availability of financing aggressively, and they have not. Because of the wash into our business from the auto industry, customers constantly ask if we are able to finance bikes. Harley could simply advertise more to drive traffic. Maybe it will in the spring. Harley could stop increasing support prices for the dealer management system and any other services it provides until the economy improves. It could underwrite more of the training expenses for dealers (like provide free training) so that we could use this time to get better at what we do. Harley could make dealer involvement in its 20-Group program free to help more dealers get better. Co-op could be increased to encourage us to advertise in our local markets.

Harley could also aggressively work to stop allowing discounting, utilizing the recent Supreme Court case that allowed a manufacturer to refuse to sell to a discounting retailer. The Motor Co. could also move toward a sales culture that automatically says 'yes' and then look to see how to make dealers ideas work rather than the automatic 'no' we now automatically receive. Harley could stop competing at retail at special events with their own T-shirt sales and more strongly limit distribution of licensed product through outlets other than the dealer network so that more traffic would come to the dealerships to buy these products. Harley could also move back from its need to control, through micro-managing, so much of the sales arena, limit the influence of the legal department on sales and business operations, and work to increase its flexibility in its dealer-facing decisions.

Are you cutting back on marketing or advertising?

HICKS: Only on some Internet 'pay-per-click' programs that are expensive and we do not believe we are getting enough ROI.

LADD: Yes, by 35 percent.

BELDOCK: We are getting smarter about the media we use and deals we make, but have not reduced our marketing budget for 2009. Marketing will always be important. Even Coke and Pepsi still advertise, and we all know who they are.

BROWN: Marketing is all based on sales. Are we cutting back? Maybe. How much? Ask me in April.

HEARNE: We have cut out direct mail and Yellow Pages.

REEVES: No. If you have a solid grasp on what your marketing needs are and only advertise when necessary, where necessary, then there is nothing to cut back on.

Are you considering any discounting to increase volume?

BELDOCK: We are not a discount dealership and add value by being the best. We have forecast lower (unit) volume and higher quality.

BROWN: Discounting only leads to a devaluation of the product. I will if forced, but I want to sell the product's value for maximum margins. Those dealers who have to resort to discounting fail to realize that cutting back on volume and maximum margin would give more [to the] bottom line than discounting. (Figure the extra work, sales, and expense to achieve the same dollars available to pay bills).

HEARNE: We will reduce pricing to stay competitive in our region as necessary. But things like invoice pricing will not increase unit sales significantly.

LADD: Possibly offering a little more in gift card value when purchasing a motorcycle. More items discounted in P&A and general merchandise. Volume discounts on service work.

REEVES: We are a location that goes strictly by MSRP and will continue to be so. To have price be the main focus of your store is a major mistake. Improving things like customer service and items in stock is where any location should strive for the upper hand. Focusing strictly on price is an extremely poor manner to conduct any business.

With the problems facing the F&I side of the business, what alternative forms of retail financing are you using or investigating?

BELDOCK: We have some strong local credit unions that haven't dried up yet.

HICKS: We have not been having trouble getting people financed.

LADD: Rates from H-D Finance are high compared to local credit unions. It is basically tougher getting anyone financed who is not a Tier 1-4, and rates for higher tiers are excessive. We have been unable to find much better rates at other institutions, local or online.

As new-vehicle sales slow, which segments will you focus on for 2009?

HEARNE: Needs vs. wants. The agriculture market needs ATVs, etc.

BROWN: PWCs, ATVs and snowmobiles are all products that are slowing in demand. To me, this is because these products are seasonal and customers want something that is not so seasonal or at least useable over a longer period of the year. Dealers must start concentrating on the core products available for customers and at present those are street units of all sizes, plus scooters for the frugal, which are the backbone of the industry. Without these products there is no main desire for the others.

What are you doing to keep customers coming back and to attract new ones?

BELDOCK: We try to provide an outlet for their passion and a family to explore it with. For new customers, word-of-mouth. We are hard-targeting referral business via CRM.

BROWN: The main issue here is to create a desire to ride, and fulfill that desire. For without that desire there is no need. We are a want-based market, not a need-based market. We make sure there is always a reason to ride no matter the season. Those who choose to ride in ... the off-season still need a reason to own your product. Fill it in spades.

HEARNE: We continue to have open houses and are giving away a few smaller units to try and generate interest. We have no active programs targeted to just new customers at this time.

HICKS: To reach new customers, we're increasing outside events, concentrating more on all of our advertising and searching out new venues to get the word out about us and our bikes.

LADD: For existing customers, promotions, sales, e-mail blasts, winter service specials. For new customers, a small amount of TV and radio advertising. Personally, I don't feel price is the issue with most buyers at this time, but rather it is fear that is keeping them from buying. Little I say can divert that fear so to spend more money now than normal to try and lure new customers would be a waste of time. Our customer service received outstanding scores on the third quarter 2008, and word-of-mouth is still a great way to reach new customers. Good CSI scores are not only a barometer of how your customer perceives you now, but a good predictor of future business.

REEVES: Always being on top of customer service and product knowledge is key to getting repeat customers. Things like always having the right part in stock or ordering the right part the first time, every time, is a huge part as well. Keeping on top of the latest and greatest items on the market plays a big role in getting new customers. When a customer calls your store or comes in and finds that you have that part or accessory that just hit the market, it makes a huge impact. This keeps that new customer coming back because they have no reason to believe that you won't have something they are looking for in the future.

Which is more important now: optimism or realism?

BELDOCK: Optimism. Look up, the sky is still there. This is motorcycles. Never chop the throttle.

BROWN: Optimism. Without that, there is no realism. Think positive and work toward that goal, for without the trying there is no reality.

HEARNE: Both. As owner you need to be a cheerleader and keep everyone's head in the game. However, you shouldn't avoid making tough choices and must confront the facts as they are.

HICKS: Realism, but if you lose your optimism, focus and enthusiasm, you are done!

LADD: Optimism is innate. Realism is a must. Realism is slightly more important.

REEVES: Optimism. This is what is going to bring increased revenue. Not sitting around worrying about what bad things could happen. As a business owner you must always hope for the best, or you are doomed from the beginning.

SCHALLER: Both optimism and realism are essential. We should and shall not ignore the economic realities of life in a recession. But, those same conditions present opportunities if we are smart enough and agile enough to recognize and take advantage of them.