A boat manufacturer recently shared his concern about the perception of 20 Groups among some of his peers.
Beyond you’ll find my response, which will hopefully clear up some common misperceptions about 20 groups and illustrate the benefits to both manufacturers and their dealers.
Misperception — 20 Groups cause dealers to sell fewer units because dealers are encouraged to charge higher margins. Dealers should sell for less so they can sell more boats.
Reality — In the long run, 20 Groups actually help dealers grow sales volume, while increasing margins only 2 to 5 percent in most cases. After joining a 20 Group, sometimes a dealer will focus on a specific area of business, like accounting functions, service income or improving CSI, causing the attention to sales to temporarily slip a bit. This can be interpreted as sales volume declining due to unreasonably increased margins. Dealers eventually regain their momentum and significantly increase both sales and margins.
A solid case study for review
When our Cobalt 20 Group began in 1999, the average member was operating at a break-even gross margin, while average sales volume was $4.8 million. By 2001, the average new unit margin increased by 5.2 percent and sales volume increased to $6.2 million. This is a 29.2 percent increase in sales over two years, while increasing margins by more than five percent. Net profits grew during the same period by more than 55 percent!
In 2013, this same group maintains similar gross margins and net profit percentages, but the average sales volume is tracking at $20 million. Eight of the 2013 Top 10 Cobalt dealers are in this 20 Group and six of these dealers are above the group average for new boat margins. Cobalt’s No. 1 dealer for the years 2007 to 2011 are also members of this 20 Group. All are top gross margin performers.
Dealers do not have to reduce margins in order to sell more boats. Higher sales volumes and higher margins are both achievable. Properly trained dealers realize there are many factors that effect higher margins and sales volume: pristine showrooms, professionalism of the sales force, sales presentation, consistent lead follow-up, services offered such as winterization and storage and a great delivery experience are just some of the factors that help drive sales and margins.
Long-term 20 Group members consistently increase sales volume, improve service and CSI scores and significantly upgrade their facilities. Very often, they build new stores and/or add additional locations, which in turn increase sales, all while significantly increasing net profits. The higher net profits create better balance sheets, allowing for increased floorplan limits and the ability to upgrade their facilities and buy more products. This is truly a win/win scenario for both the dealer and the manufacturer alike.
Unless your brand is promoting entirely to an entry-level buyer, low price is not the primary reason that customers buy a boat. However, dealers who sell to this market segment can also benefit from the 20 Group experience by improving all the other profit centers in their business.
Misperception — 20 Groups encourage dealers to stock fewer boats.
Reality — 20 Group members are encouraged to stock the proper levels of inventory in order to average two plus turns annually. GE recommends that marine dealers achieve at least two turns (a six-month supply) to remain financially healthy. Our dealer members are encouraged not to exceed four turns (a three-month supply) as they are likely to miss boat sales due to insufficient inventory. So the “sweet spot” is between a three- to six-month supply of inventory at all times. In order to achieve higher than two turns, we encourage dealers to pre-sell boats from manufacturing slots.
Misperception — Warranty claims increase when a dealer joins a 20 Group (implying bogus warranty claims are submitted).
Reality — True, warranty claims do increase, but not because dealers are trying to hurt the manufacturers. Prior to joining a 20 Group, most dealers are disorganized in their service departments, so they do a lousy job of submitting warranty claims on a timely basis. We emphasize proper monitoring and reporting of ALL service income, including warranty. Dealers are entitled to all amounts they are legitimately due, but dealers are never encouraged to submit bogus claims. The resulting increase in warranty claims represents the amount that should have been submitted all along.
Misperception — Dealers like doing warranty work.
Reality — Dealers greatly dislike doing warranty work. Warranty rates typically allow less time than jobs normally take and often reimburse at lower than shop rates. It is often a hassle to get approvals and the correct parts. Dealers would love to get a boat from the factory that did not require anything more than gas, a battery and cleaning for delivery!
Misperception — 20 Group members of a branded manufacturer group will gang up on the factory to make unreasonable demands.
Reality — Making “demands” is never allowed. It does not fit into our win/win philosophy. A branded 20 Group provides a fantastic opportunity for the manufacturer to meet with their best and most progressive dealers. The mutual exchange of ideas allows for both the dealer and the manufacturer to better understand the others’ point of view. This kind of constructive feedback and positive teamwork approach on products and policies is highly beneficial to a manufacturer.
Misperception — The best dealers for a manufacturer are uneducated in the ways of business so they can be manipulated into buying more product than they need.
Reality — We believe that savvy, progressive dealers who are financially healthy make for a healthy, growing manufacturer. This is a win/win philosophy that works long-term. We operate our 20 Groups with this same win/win philosophy. Floorplan companies recognize that long-term 20 Group members are better run, have better financials, are better credit risks, can afford to attain higher credit limits for their floor plans and have a much greater chance of surviving the next downturn.
The bottom line
A manufacturer’s job is to provide innovative product at a reasonable price; delivered to the dealer complete and functioning.
A dealer’s job is to sell and deliver as many fantastic ownership experiences to customers as possible and to remain financially healthy so they can buy more products.
The true “deliverable” of a 20 Group is that it drives continuous improvement in ways that a manufacturer cannot duplicate. Belonging to a 20 Group creates peer pressure among members to improve their financials, facilities, processes, procedures and CSI. This improvement feeds on itself; as one dealer’s improvements are reflected in the financials of the 20 Group report, the other members are motivated to implement the same practice. Each dealer leaves a meeting with an “Action List” of ideas to improve his or her operations.
Each year, 22 to 30 of Boating Industry’s Top 100 dealers have been in my 20 Groups. Our clients strive to be the best, and it shows.
Manufacturers need dealers who are financially strong, able to provide an outstanding customer experience and who are willing to reinvest in their facilities and brands. There is no better way to consistently provide this outcome than for a dealer to join a 20 Group.
David Parker is the founder of Parker Business Planning, Inc., which facilitates 20 Groups, and provides consulting services to marine dealers and marina owners throughout the U.S. and Canada.