Feb. 11, 2008 – What’s really recession-proof and worth marketing

I’m going to venture into some dangerous territory here by throwing out some daring and perhaps even questionable statements with the ultimate goal of creating a new line of thinking.
So stick with me, even if your business acumen tells you otherwise because these notions are based on fact.
First notion: Up to half of a dealer’s business should be considered recession-proof.
Second notion: Even after what was likely a difficult year of cutting expenses, there’s a good chance dealers should do more in that arena.
Let me address the latter notion because it’s probably the easier one to swallow.
A national survey of 500 dealerships conducted for Powersports Business in 2007 focused on health care coverage. On average, surveyed dealerships that provide health care benefits ask their employees to help pay a portion of the cost only about half the time.
And the less the dealer makes per year, the more likely they are to cover the entire cost of health care, the survey found.
To put this data into perspective, consider a 2006 survey of public and private employers outside of the industry that showed more than 80 percent of employees are asked to pay a portion of health care costs.
What this means is on average retailers in other industries — which are vying for the same squeezed discretionary income we are — have that much more money to put into marketing or additional staffing and hence better customer service because they’re paying less for health care.
But, you might argue, other retailers do not have service departments, thus are not so reliant on experienced staff and have no problem taxing their employees’ paychecks more because after all, who cares if they leave?
And that’s a valid argument, even if it’s stated in an overly simplistic fashion. But the truth remains: If you as a business owner are paying more expenses than a competitor, then you have fewer chances to capture consumer spending.
This is something you should point out to those valued, experienced employees. There is nothing wrong in being honest in letting them know why a change in health care benefits is needed. At the same time it would be a good chance to consider an employee bonus plan or improving the current bonus plan you have. The message then would be clear: This change in benefits is occurring to improve the business as a whole with the ultimate goal of improving sales and then rewarding the staff as a whole.
Now for the stickier of the two notions: that up to half of a dealer’s business should be considered recession-proof.
From the same Powersports Business survey cited previously we know that metric and Harley-Davidson dealers rely on new unit sales to account for roughly half of their annual revenue. The rest of the revenue pie comes from the service and PG&A departments as well as from the sale of preowned units. (F&I makes up a very small piece of that pie, which is a topic for another day.) Exactly how much of that other half of the revenue pie is divvied between the service, PG&A and preowned units depends on whether it’s a Harley-Davidson dealer or a metric dealer, plus other factors.
But the differences in this case aren’t as important as the similarities: That all three of these profit centers, which make up roughly 45-50 percent of total revenue, should be viewed as potential growth markets even in a depressed economy.
Not convinced of that? Let me help sway you.
The one area of revenue where both metric and Harley-Davidson dealers were up in 2007 vs. the previous year was the service department. That was the finding of ADP Lightspeed, which analyzes same store sales data from more than 130 dealerships for Powersports Business. And it coincides with the belief of what a “recession-proof” product really is — anything that a consumer absolutely needs vs. what they want and often can’t afford.
Since the service department business is growing, then it only makes sense that PG&A department sales should be healthy as well. Although overall same store sales data does not show an increasing PG&A business, it does show it holding steady, with significant areas of the country actually up vs. 2006. This coincides with the belief of many in the industry that although consumers might not be willing to buy the big-ticket items (the new motorcycle or ATV), they are still willing to accessorize the vehicle that’s currently in the garage.
Another sign of reduced discretionary income is the state of preowned sales. A national dealer survey conducted late last year by Powersports Business showed preowned unit sales are much healthier than their new unit counterparts. Plus, the survey found dealers are selling a larger number of used units this year compared to 2006.
Yes, all economic signs point to the first half of 2008 being as bad or worse than the previous year in terms of one-half of the dealer’s revenue pie — new unit sales. But that does not mean the dealer shouldn’t have a real shot at increasing that other half of the revenue pie.
That’s a notion that might be hard to stomach, but it should bring about a change in your thinking regarding your marketing and staffing efforts. Because if those efforts are solely focused on big-ticket sales, then it’s you, the dealer, who will be venturing into dangerous territory.

At Dealer Expo

Please come by and say hello to not only myself, but Managing Editor Steve Bauer, Associate Editor Karin Gelschus and the entire Powersports Business staff at the Indy Dealer Expo. Powersports Business will be part of the Affinity Media booth at No. 1613.

Neil Pascale is editor-in-chief of Powersports Business. He can be reached at npascale@ehlertpublishing.com. psb