April 23, 2007 – How many you sell could depend on how many you hire
April 23, 2007
Filed under Columns
I recently conducted a conference on dealership sale and acquisition. We had a great turnout and it was a very sophisticated group from a cross section of the industry as well as individuals considering entry into the business.
We focused on dealership valuation, dealership acquisition deal structure and financing along with how to assess the potential of a dealership. As part of the conference, we reviewed all available market data on sales and registrations as well as Lemco composite data now compiled by the RPM Group.
There is plenty of history on what has happened, but no ready calculation of what we could sell.
Shortly after Lemco and Associates was formed in 1980, we began, with the help of my old friend Joe Ramos, doing a lot of work for Kawasaki. Old Lemco dealers will remember that our “20 clubs” were known as “K groups.” I recall a meeting with Chuck Larson, then the senior American in the company, when he asked me what I thought was the biggest deficiency at the retail level. After establishing that I had to answer in one sentence, my reply was, “There are not enough salespeople.”
If asked the same question 27 years later, I would have the same answer.
To acquire a dealership today requires a forward earning forecast that is superior to the trailing earnings. If the acquisition utilizes borrowed funds, the increased earnings are needed for debt service. The prevalent math is that a seller must have six times trailing earnings for it to make sense, while a buyer needs to pay three times the forward EBITDA.
So, the quick fix, and latest thinking, is the same as my advice in 1980. You need more salespeople. Since the biggest deficiency in the retail segment remains the inability to recruit, hire and train an adequate number of salespeople, the ability to do so is the magic needed in an acquisition.
There is a lot of new thinking to make the old revelation work. The new thoughts are the product of paying attention to literally hundreds of thousands of customer interviews the Alliance Call Center has conducted the past few years. Input from the customer has dramatically altered how I advise dealers to structure sales departments. What has been proven is another old dictum that price is not the primary issue when it comes to the customer making a decision on buying a motorcycle or ATV. Dealerships that have not revised their sales process find that what sales staff they do have is spending all of their time talking about price. In doing so, all they can do is slug it out with the real or perceived threat from regional discounters.
Motorcycles are fun. We have great products to offer. We have dealerships offering a level of service not found anywhere else at retail. We have more than 9 million customers in the United States expanding the adventure and finding new ways to have fun. There is so much to discuss before we talk about price. Structuring the sales department to do just that provides the increase in sales the buyer of your dealership needs to provide you with an exit. Or, perhaps you can fix it yourself and keep the increase in forward earnings for yourself.
The bottom line is you have to change the approach on the showroom.
At its annual meeting, the National Council of Motorcycle Dealer Associations (NCMDA) decided to, with the help of Robert Bass of Myers Fuller, draft a model franchise bill to update protection for dealers.
Incoming Chairman Jim Boltz has directed me to proceed on a cooperative path with the OEMs. That would certainly be a new approach that is perhaps long overdue.
I will attempt to establish a dialogue with OEMs perhaps under the auspices of the Motorcycle Industry Council (MIC). Perhaps NCMDA, on behalf of dealers and their state associations, could agree on kind of a “Dealer’s Bill of Rights.” That is bold, new thinking that is worth pursuing. It certainly would save everyone a lot of money and promote a level of harmony the industry has lacked.
Since we are dreaming, perhaps we could even establish an industry mediation process to settle OEM-dealer disputes. That would require an industry-wide agreement on dealer rights and obligations. I will take a swing and let you know.
HARLEY AND THE MIC
When the MIC was formed, the Harley-Davidson Motor Company was a charter member and perhaps the primary promoter of the organization. Big Orange dropped out when there was a dispute of tariffs on imported motorcycles in the 1980s. Today the MIC does so much to promote motorcycling and rider education it is time to forget the beefs of the past and be part of the solutions for the future.
Harley dealers should urge the DAC representatives to bring the issue up to the Motor Company. Harley-Davidson registrations clearly establish them as the industry’s leading brand. It would be great for the entire industry and Harley-Davidson dealers if the Motor Company were to take the role as a true industry leader by becoming a full dues-paying member of the MIC. Cheers, Ed. psb
Ed Lemco has been involved with the powersports industry for more than 30 years. Lemco, the former owner of Lemco Management Group, is the founder and executive director of the National Council of Motorcycle Dealer Associations. Lemco currently operates a call center for dealers in St Croix.