BY TONY GONZALEZ
Margins. We continuously discuss low margins in Garage Composites 20-Clubs and how margins rarely seem to be what they used to be. While many dealers face the blight of shrinking margins, there remain many that continue to thrive in recent years. Many dealers tell us about the discounters that surround them – which indeed is a true and unfortunate circumstance that plagues our industry. Various other dealers will explain that the manufacturers continue to compress the margins that a dealer can make – which unfortunately is a trend that we have noticed as well. And then there are the dealers that explain that they will “work every deal for every dollar…but at the end of the day, I will take a skinny deal and try and make it up in F&I, Parts and Accessories, and Service.”
The last statement is what I want to focus on here as I cannot control your competition, nor will I ever sit on the board of directors for an OEM. Before getting too deep into why we should stop taking so many skinny deals, let’s discuss those ever-elusive margins. Did you know, based off 2017 Garage Composites National Averages that 1 point of margin in the Indian and Harley space equates to roughly $230 (thus 10 percent margin = $2300 margin)? For the metric space, On Road category, based off our 2017 data, one point of margin equates to roughly $129 (thus 10 percent margin = $1290 margin). This data should be of strong interest as percentage points don’t hurt as bad as dollars and I want make sure all dealers understand this concept.
Now that we understand what a point of margin is worth, lets discuss the line of tolerance that is rarely identified and often broken. While many Dealers Principles and General Managers may (or may not) understand the threshold of profitability, there are many Sales Managers that do not know that around the 8 percent margin mark, motorcycle deals become unprofitable – remember, you still have payroll, flooring, advertising, etc. Taking skinny deals that flirt with the 8 percent line, or worse – go below it, as a common practice is a surefire way to begin to lose big in the department that typically supplies north of 75 percent of revenue in a dealership.
Now, as the title of the article states, I am hearing more and more about the necessity of taking skinny deals. When a mindset creeps in a dealer’s head that they will always take a skinny deal, and make up for it in the “fill in the blank” department, that mindset becomes pervasive and plants a flag that is tough to reverse. The reason that this is dangerous is in the verbiage that is used. The statement should say “I will take a skinny deal only if I have to and only after I determine whether I can replace the unit or replace the customer.” Other factors that should determine whether we wade into a skinny deal are aged inventory, floor plan, talent of your F&I manager, where the customer lives in proximity to your store, how well your after-sale tour is, etc.
You see, while I consistently hear excuses why sales margins are so low, I rarely observe a dealership that has terrible sales margins that are balanced by fantastic F&I, Parts, Accessories, and Service margins. This means that dealerships typically do not make up for low sales margins in the other departments, but rather they continue to lose all the way around the dealership. Losing does not feel good, nor does it pay well – and your team will feel this aftermath. Furthermore, know that you will consistently destroy not only margins but morale, a quality customer experience, retention, and the ability to recruit talent.
Finally, know that when we discuss a dealership being four points off margin, we are talking about $920 less dollars than the rest of the country in Indian and HD space and $516 in the Metric space. Multiply that times the number of bikes that you sold in a month or year and that tells you how much money you left on the table. Margin is a state of mind. A state of mind is why some dealerships can hold solid margins and why others cannot. Every dealership has “that” dealer as competition. Each dealership faces the issue of phone calls demanding the lowest price out the door. All dealerships have lost deals to another dealer that is outside of their designated area. Do not let these situations be your compass. Instead, start every deal at MSRP, always create a culture of a down payment and ensure each customer sees a payment, not just a price and you will be on your way to higher margins. Process will always trump the chaos of a customer’s demands. Fight for every dollar you can, stop consistently meeting customers “in the middle” and truly start working every deal for every dollar.
Tony Gonzalez is CEO of Garage Composites. He began his career in the motorcycle industry when he was hired by Ed Lemco in 2004. A true student of the industry, he quickly became a sales trainer and a moderator. Gonzalez has a keen model to motivate his clients and is considered one of the best 20-Club moderators in the industry. Tony believes that his greatest accomplishment was recreating the environment that put the motorcycle dealer first again. He is passionate about being a dealers advocate and firmly believes that his dealers are his family, not his clients.