BASIC REQUIREMENTS TO BE A DEALER. RV Trade Digest, January 1995

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Elijah Houston
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1 BASIC REQUIREMENTS TO BE A DEALER - Bill Gorman - RV Trade Digest, January 1995 The time for fair-weather dealers is back. Fair weather dealers are those who only come out of the closet in good times. They try to make some quick money, and then when the clouds appear, they liquidate and run. One of the problems for the legitimate dealer is the ease for someone to get into the business and become a dealer. Most of this problem would be cured if there were some basic guidelines that the manufacturer would follow before they would sell product to a dealer. These guidelines are not very well defined in our industry. Often, to get a product line from a manufacturer in the industry, the only requirement is that the factory does not have another dealer in the area. Some states require a dealer s license before a dealership can open. Some of these states require a building and some paved property to be considered a legitimate dealer. In the automotive industry, the requirements are quite heavy before you can get a franchise. I hope the following will be a good, basic guideline to some minimum standards for manufacturers. In these days of everybody and his or her brother wanting to be a dealer, the manufacturer has a basic responsibility to pick a legitimate dealer to represent their product. In a recent phone call with a manufacturer, he asked me where are all these people who are calling him coming from? Out of the woodwork? People were calling this manufacturer and saying, I was a dealer seven years ago and I thought about selling these things again, so why don t you send me two or three units to get started again? A financial statement that qualified the dealer to get floor plan financing is a good starting point; a financial statement that says this dealer can stay in business. As an example, a minimum investment or working capital level of $250, 000 is essential. A dealer should have to purchase a minimum level of inventory to get started. In most cases, three or five units won t get the job done for the manufacturer or the dealer. AS a matter of fact, often the dealer who only tried to sell a brand with only two or three in stock often fails with that product line. It is important to have a location that has a high traffic count and in a business area with a facility that will support the product. This means hard surface on the outside, not mud and sand on which to display the product. There needs to be a minimal amount of showroom space and outside display area. It needs a service department that can support the customer base created by the manufacturer and the dealer. A real dealership needs to have its own service department, not sub-

2 contract out the service work and prep. It also needs to have a parts department to support the service department. Every major manufacturer should require a predetermined accounting statement format, such as the DMS Financial Statement, to be sent to them by the 15 th of each month. The manufacturer is expecting a lot of the dealer in the way of sales performance and the ability to stay in business. Ongoing standards for the dealer to live up to need to be in place. These could include working capital, facility appearance and CSI performance. A dealer should be able to depend on the manufacturer to stay in business and supply product. Also to have quality in their product and the warranty assistance to support the dealer. A dealer should be able to get a good dealership agreement that requires both the dealer and the manufacturer to live up to some performance levels. Now what about the dealer principal and the staff; are they qualified to be a dealer or a manager or the different departments? The factory should offer dealer training or, at least, help to support it. It is amazing to me how many dealers cannot even read their own financial statement or how many salespeople don t know the product they are selling. The following summary should be considered by a person who wants to be a dealer and a manufacturer before signing up a dealer to represent his or her product. Does the dealership have a viable location? Is the facility capable of getting the job done successfully? Can the dealer get a product line that will sell profitably? Does the dealership have sales talent? What parts-stocking requirement will be practical? Is there an adequate service facility and service staff? Is there a budget and an accounting system that will provide good management information? Is there enough capital to be successful? Are key employees in place with the knowledge to do the job? When we wonder about how our industry is perceived from outsiders, we only to look in the mirror. If we see hard-working professionals in the mirror, then that is what our public is seeing. RV Dealer! What s the Difference? Big RV dealers are acting more and more like car dealers. In many cases car dealers have a big head start over RV dealers in sophistication and management systems. Let s look at some differences and reasons for RV dealers to learn from car dealers who have a head start in business management; namely experience.

3 A major difference is that the average car dealership is a single franchise store. The owner may own several dealerships, but each one is typically exclusive to a single franchise. This trend is changing somewhat as car dealers are being allowed to share service departments and sometimes can have adjoining facilities. This can make the car dealer a lot more profitable as it shares a lot of the fixed costs. The average RV dealer carries four to five franchises. Some even carries as many as 12 franchises. More RV manufacturers are finding that they need more representation and are pushing for exclusive product representation by their dealers, but this seems a ways off yet. For a dealer to survive in the future, he will need to have several product lines or a very strong manufacturer for product representation that has a complete product lineup. Our future is to become more and more competitive and have several profit centers in the dealership. Every time a customer comes into the dealership, each department will have an opportunity to benefit. If the customer bought his present unit from the dealership, then the Parts and Service Departments will have an opportunity to encourage his patronage for the Sales Department in the future. When a prospect comes in for parts and service, the Sales Department also has an opportunity to talk with the customer, if they take advantage of it. When some of the overhead is paid by the other departments in the dealership, the Sales Department can be more competitive on its pricing. In addition, when the Sales Department makes a sale, the Parts and Service Department makes more money also. The auto dealer is often more sophisticated in business experience than the RV dealer. This is mostly because of size and number of years of doing a large volume of business. A lot is to be said of the factory support the car dealer gets, which also gives the auto dealer more experience. The car dealer knows his or her financial statement in greater detail than does the average RV dealer. The information reporting and accounting systems are more uniform for car dealers, allowing for better comparison information. A major part of the sophistication of car dealers comes from their use of computers. Today, auto dealers have computer systems that are totally integrated throughout the dealership. Every sale is tracked to maintain their service records and when they are ready for their next car. These same types of systems, such as RV Soft in Canada and Integrated Dealer Systems in the United States, are available for RV dealers. But few dealers have taken advantage of them and fewer still use them fully. The future of the RV dealer is clear. Just look at the car dealer next door and you will see the RV dealer of the future. Some examples will be:

4 In the New Sales Department: Departmentalized selling is becoming more prevalent. The Sales Department in a car store is divided between new, trucks and leasing. In an RV store, it could easily be separated for fold-downs, towables and motorized. This makes it easier for the salesperson to be an expert in the product. Sales systems, such as the Gorman Sales System, which is a desk control sales system, will be more prevalent. This means dealerships will use greeters, closers and sales managers. Sales commissions will be based more on the individual performance of the salesperson. A big difference between an RV dealership and a car dealership in the New Department is that very few car dealers make a profit, especially without the F&I income. In the Used Department both types of dealerships are very profitable. This end of the business is very dependent on the availability of used inventory. How trade-ins are handled becomes important. The ACV needs to be right. If you want to turn used inventory, you need to pre-prep and detail it ASAP. Some of the differences in the Used Department are that the car business has a very wellorganized wholesaling and auction system that supplies used inventory, as well as being able to turn used inventory into cash within a week. Car dealers usually have a separate sales force for the used inventory. The F&I Department is a major profit center that helps dealers stay profitable. Without F&I, many car dealerships would not be profitable. By the same token, car dealers do a better job of selling a complete selection of what is available in the F&I office. A big difference is that terms are typically much longer and the potential for total dollars on F&I income can be a lot higher than in cars. For the Parts and Accessories Departments, the differences are that parts availability is much better for the car dealer. Consequently, work in the Service Department isn t tied up as long waiting for parts. The car dealer normally does very little with an open store for accessories. This can be a major profit center for RV dealers. A major car dealer will often have a big wholesale parts business for his franchise s parts; this is missing in most RV dealerships. In the Service Department, the similarities are astounding. The department can clearly operate on a flat-rate system in any type of a dealership. In addition, the service-technician pay plans can be on a flat-rate basis. A big difference is that the car dealer has only 5% to 10% of the internal work that the Service Department has. Factory requirements are considerably different. As an example for an RV dealer: There is not as much pressure put on the dealer to take product in most cases. The dealer, unfortunately in most cases, is not required to share his monthly financial statement with the factory. Nor is the dealer even required to have a monthly financial statement. Factory requirements to get a franchise are not nearly as strident as they are for auto dealers. An auto dealer candidate would have to display experience in the business and have the financial strength

5 to build an adequate facility and have capital to survive. This is unfortunate because far too many RV dealers are too lean financially or are in inadequate facilities. Factory support with the auto industry is much more complete in the forms of understanding a dealer s needs, floorplanning assistance, parts support, and service and warranty support. Another difference is the time is takes an RV dealer to deliver a new or used unit. A car is typically delivered in 30 minutes; an RV takes anywhere from two hours to three days, depending on the size and manufacturer of the unit. The Accounting Department of the dealership is also different. RV dealers are just starting to use the DMS-style accounting system. This format has been used in the car business for a long time and is the best. There is a large labor pool in most markets of experienced people to do this format of accounting. Floorplanning cost is also different: This cost is usually lower for car dealers because of the subsidy from the car manufacturer and the much faster turnover in cars. Typically, new car inventories in stock are usually under 60 days yearround. For an RV dealership, it is typically 90 days year-round. It is also important to point out that there are several advantages that RV dealers have over car dealerships. For one, the RV dealers have the ability to operate with a better gross profit margin. Many car dealers are being limited in their gross profit ability by the factory retail pricing tactics. RV dealers can also learn from the mistakes that car dealers have made. Bill Gorman was President of Gorman Planning Co., Ltd. in Virginia Beach. His many years of experience in the industry included positions as owner of a dealership, general manager, sales manager, salesman, mechanic, service manager, manufacturer s representative, consultant and trainer. Following his death, Bill s impact continues in the hearts of people and within the many organizations with which he had contact over a long and highly successful career. These articles are re-published and may be used for individual reference. They are published in this online library with permission.

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