Transition Time: Start strategizing now for a successful switch to the slow season

By Bob Clements

As the season begins to wind down, it’s a great time to reflect on the year — its ups and downs, as well as the good and bad relationships with your customers, vendors and employees — and to start brainstorming about how you want to position your dealership for next year.

It may seem a little odd to start thinking about these things before the season is over. But, while everything about this season is still fresh in your mind, now is actually the best time to start making decisions about how you will maintain your cash flow and credit lines over the slow season, as well as your approach to next year. Be sure to set aside some time now to do a thorough “reality check” on each part of your business.

It begins with a look at financials

A great place to start is with a general look at your financials and your year-to-date (YTD) numbers for each of your profit centers. I understand that with the rocky economy, it’s hard to look at your YTD numbers in comparison to the last couple of years, but it can still be helpful to conduct a financial review of your wholegoods, parts, service and rental business relative to the last two years.

You will have to make a few general adjustments based upon weather conditions during that time frame. Last year, some areas were extremely dry while others were extremely wet, so you will have to do a little guessing. Although as a consulting company, we don’t do full financial analyses of all our dealers, we have a general sense of where the year is trending at any given point based upon the geographic regions we cover. As a point of reference, most of our dealers saw a decrease in wholegoods sales, but maintained their margins.

I know some manufacturers are saying that if you lowered your margins, you would have sold more equipment, but there is nothing in the marketplace that suggests that to be the case. Just as the auto industry found that regardless of the discounts offered, people were not in the mood to buy new cars, the same held true for the OPE industry.

Evaluate your wholegoods numbers

On average, our dealers were off by 15 to 20 percent in wholegoods sales. For those dealers who were heavily weighted toward commercial cutters, it was more like 20 to 25 percent. Those dealers who sold compact tractors found sales were off 7 to 12 percent.

Look at your numbers from last year and compare them to our findings. Are your numbers in line? Did you sell more or less? Where you are this year relative to the last couple of years should tell you how you want to position your wholegoods lines for 2010.

Now because no one has a good feel yet for what the 2010 season will be like, we are encouraging our dealers to start tightening up their wholegoods lines. We don’t believe that the economy is going to be significantly better in 2010 than in 2009, but do believe that the shock of the recession will have passed and that people will be more open to considering making purchases. Still, we are encouraging our dealers to play it safe for one more year.

During the next couple of months, you will be receiving pressure from your manufacturers to load up for the 2010 season. I would encourage you to hang back just a little. If you feel the need to commit to large numbers, at least load up with your top manufacturer and let your second- and third-tier manufacturers slide a little. Sure, you will lose some margin opportunity from those you cut back on orders, but we believe it will be in your best interest to do so for one more year.

Make decisions about your parts inventory

As you move from wholegoods to parts, you should have seen an increase in the percentage of parts sales that was equal to or greater than the percentage loss of your wholegoods sales.

The parts business for our dealers has been up from a low of near 20 percent to as high as 50 percent. Again, not much of a surprise. We felt confident that wholegoods sales would be off by around 20 percent, which meant that parts sales would be up by at least that much. Not only did we see parts sales increase, but most of our dealers also pushed their margins up by an average of 3 percent. Take a look at your YTD numbers, and see how they compare to what we are finding with our dealers.

As you get ready to make the transition into your slow season, your parts department is the one area that you should make the most changes. Your goal in your parts department is to go into your slow season with no more than 30 percent of your peak season inventory. For example, we would recommend to our dealers that if they carried $400,000 in inventory at the peak of their season, they reduce that to $120,000 by the time they reached their slow season.

To accomplish that feat, a couple of things are going to have to happen: You are going to need to wind down your parts inventory, and get more aggressive on returns.

First, your parts manager will need to evaluate every stocking order to determine if you really need to carry that part through your slow season. We would expect our dealers to reduce the 100 top-selling parts in their inventory to a bare minimum. You don’t need three cases of common oil filters on hand on November 30, so why have them sitting on a shelf waiting for spring to arrive? Now is the time to start winding down your parts inventory. In another 30 days, it will begin to be too late to have the kind of impact on your final parts inventory numbers that we would expect to see.

Second, we recommend to parts managers that they begin the process of putting together their parts returns for each manufacturer. This is consistently one area that most parts managers neglect. I know it takes some time to do, and I can appreciate that even at this time of year that your parts department still has moments that it gets very busy. But, it’s critical to the long-term health of your parts department that these returns take place. It is not unusual for us to begin working with a dealer only to find that person has seldom taken advantage of the ability to return parts to a manufacturer. As far as I know, all but one manufacturer will allow you to return parts that are in good resalable condition for a credit of some type.

Don’t wait until the end of the year to start this process because, if you do, in most cases, it just won’t get done. As an owner, it’s critical that you make sure your parts manager goes through this process. If not, I promise you that, year after year, your parts inventory will grow with parts that will ultimately be thrown away. We expect parts managers to manage their inventory to a minimum of four turns per year. Parts that you sell only once or twice a year need to be returned so that other parts you sell more frequently can be put into inventory and sold for profit.

A manufacturer is not going to allow you to return parts that are not in the condition to be resold. That means that the package for that part needs to be in near-perfect condition. Don’t get mad at manufacturers that don’t want your junk. If they take it back, they ultimately have to be able to resell it to another dealer. Remember, every manufacturer has a specific return policy, so during the next 30 days, make sure you or your parts manager understands each manufacturer’s guidelines to maximize your dealership’s parts returns.

Evaluate your service personnel

Your service department is another area I want you to run your YTD numbers. At this time of year, your service department should be slowing down to a point that there is enough flow to keep the department busy, but not enough to where you are still swamped. So, now is a great time to grab some coffee, step away from the counter for a couple of hours, and really give some thought as to what happened this year with your shop.

For all but a couple of our dealers, this year was a strong growth year for service. Again, with wholegoods sales down, it’s natural that labor sales should be strong. As you run the YTD numbers, you should see a nice increase in labor sales and in gross profit of your shop. I encourage all dealers to look at each service tech, and evaluate how each did. What was each service tech’s billable hours compared to last year? Keep in mind that a service tech has the ability to produce 2,000 billable hours per year, so how did each of your techs do in comparison to that number? How did each tech do with comebacks? In our compensation plan, we allow techs to have one comeback (that was their fault) apiece per week before they lose the ability to earn a bonus. Our dealers are interested in turning out a lot of quality work, not just a lot of work.

What were the attitudes of your techs? Were they team players or prima donnas? I have no room in my service departments for technicians who believe they are godlike. In most cases, those are the technicians who produce average work and are a pain in the backside. I have had multiple dealers who have let service techs go this year because of poor work and lousy attitudes, and each dealer has been able to hire replacement techs. Without exception, each one of the new hires is performing at a higher rate and with a better attitude than the one who was let go.

I encourage you in the next 30 days to lay off the tech who gives you the biggest headache. There is absolutely no reason that you should consider carrying that tech through your slow season and eat up your precious cash flow during December, January and February.

Don’t forget the rentals

Finally, I would encourage you to take a hard look at your rental business. I am aware that not all OPE dealers currently have rental departments, but we are encouraging all of our dealers to get into the rental business or expand their current rental business. Overall, 2009 was a great year for the rental business in our dealerships. Several dealers doubled their rental sales, and most enjoyed at least 25-percent growth.

We believe that rentals will continue to be a good growth opportunity for OPE dealers and are encouraging our dealers who are currently renting to consider expanding their offering and spend more marketing dollars in 2010 toward making their existing customers aware of their equipment availability.

It is not too early to begin thinking about the upcoming slow season. Now is the time to begin positioning your wholegoods, parts, service and rental business to reduce the impact you have on your cash flow and credit lines as you move into the last part of the year.

Your ability to move into the 2010 season with cash in the bank and a good line of credit is dependent upon the decisions you make over the next 30 days. If you invest some time and have the courage to make a few tough decisions, success can be yours!

 Bob Clements is the president of Bob Clements International, Inc., a consulting firm that specializes in the development of high-performance dealerships. His organization works hands on with dealerships throughout North America, helping them attain the personal freedom and financial wealth all owners strive to achieve. For more information, contact Bob Clements at (800) 480-0737 or bob@bobclements.com or visit his Web site at www.bobclements.com.