Issue link: https://read.dmtmag.com/i/485263
SOLUTIONS 38 • April 6, 2015 • Powersports Business www.PowersportsBusiness.com "I have worked at motor- cycle dealerships now for some 26 years and have been the general manager for the past eight. I have been trying to find the most common practice in the power- sports industry as to the percentage that the parts department sells PAC (parts, accessories, clothing) to the sales department on new unit purchases. Sales wants it at cost, and parts wants it at retail. Can you tell me what the most common or best practice is?" This is a great topic. This is something I encounter quite often when doing dealer- ship on-site consulting. Many dealers do a variety of internal discounting: parts to sales, parts to service, service to sales, etc. Dealers have a wide range of philosophies they apply as to why they do this, such as: "It's only fair to discount parts to service, since they are our largest customer ..." or "Sales needs a deal from parts, so they can be competitive on unit prices …" Let's take a look at what we have going on here. First off, we believe the best way to operate a dealership is to follow a profit center accounting system. This system requires that each department in a busi- ness should stand on its own. Why? Simple business economics. If a multi-faceted, low-margin business such as a powersports dealership is not performing up to par, you have to be able to identify the area that is creating the problems. The quicker and easier you can do this, the faster you can implement solutions. We define at least five profit centers in an average dealership: new sales, used sales, F&I, PG&A (or PAC) and service. Some stores have additional divisions such as rentals, or they might split clothing from parts and accessories. Some even have cof- fee shops or restaurants in their stores. Regardless, the key to tracking these profit centers is to run them as independent busi- nesses within the dealership. In order to identify performance issues, each department has to be continually mea- sured against standards — benchmarks, if you will. There are two ways of establish- ing benchmarks: 1) create your own based on historical data, or 2) utilize industry standards based on a compilation of data from dealerships that operate under identi- cal guidelines. And 20-groups are the only method we know of to ensure that data from a group of dealers follows specific input guidelines. Unless each department deals with the other departments at full retail, you can't create a level playing field where each dealership can truly compare its data. When a dealership chooses to discount from one department to another, the pos- sibility of comparing against industry stan- dards has been eliminated. For example, GSA's National Norms are compiled from data collected from all the dealers in our 20-groups. If dealers choose to compare with their own historical data, that is their choice. Internal discounting can also create issues when trying to develop compensa- tion programs based on gross margin (a common methodology). When P&A is discounted to the sales department, gross profit for the P&A department is lowered, while inflating the gross profit for the sales department (if they include the P&A). In reality, it is truly a discount to the new unit, but it doesn't show up that way. The sales department likes to pound on service to discount labor for set-ups, installs, trade evaluations and recondition- ing. Again, this deflates the margins for ser- vice and inflates them for sales. However, service should establish a cost-averaged set of menu prices for these common jobs, so sales has guidelines to use to establish its cost in a given unit. In the profit centers accounting system, parts sells parts; sales sells units; service sells labor — period. While it is true that service is using parts to fix units, in the accounting world, parts sold those parts to the service department, which then sells the labor to install them. So, is it right or wrong to discount inter- nally? You have to make that decision. However, if you want the benefit of com- paring your individual departments' per- formance with industry standards, set up a system where each department stands on its own, is required to make a profit and deals with the other departments at retail. PSB Steve Jones is senior projects manager at Gart Sutton & Associates. He has worked in the powersports industry for more than 30 years, for dealerships and manufacturers, and as a consultant and trainer. Contact him at steve@ gartsutton.com. The sales dept. should get a discount on P&A, right? RETAIL REMEDIES STEVE JONES "Regardless, the key to tracking these profit centers is to run them as independent businesses within the dealership."