Thursday, February 10, 2011

Do we still need Motorcycle Dealerships?

Do we still need Motorcycle Dealers?

This is a question I keep hearing in the business from the dot com guys, investors, and even the banks. They say why don't you focus on retail and forget the dealerships. I firmly believe that we still need stores. I could have opened my own shop a long time ago, but didn't. I enjoy visiting shops and spending time in them. Opening a shop and running it that's a challenge to itself. Its a difficult job and not everyone is cut out for it. In a good economy anyone can do it.

I feel like I have been a part of so many that I don't have a need to open my own. However, I dedicate my time, my speeches, and columns to helping shops and in this case giving pointers before opening a new one. The US market is starting to come back and I firmly believe we still need stores especially Scooter Stores for the market to work. I also believe than unlike countries like Italy we can still save the US Scooter Dealer from becoming the service only location that has affected much of Europe.

A dealer told me yesterday that he no longer believes in giving his clients “free coffee or a box of donuts anymore.” I was really saddened by that comment, but I completely understand. We live in an age where everyone considers themselves an expert because they have access to the internet, they kick tires and go home and buy on Ebay. The truth is you cannot put online the experience of walking into a shop, smelling oil burning from a two-stroke and riding on your first bike. That experience is 50% of the battle. You have to make the web, Ebay, and all the aspects of socializing online work for you. It can still be done. My friend Peter Warrick told me “people still believe in the store,” so do I.

Now this list is written for everyone who wants to open a store. Some new dealers want to do it on the cheap, but no matter if you end up selling Vespa or only one brand Chinese scooters, you should have a roadmap. We all aspire to greatness and even the guy who sells the Chinese scooter eventually would like to have a nicer shop and sell better quality stuff. As long as he doesn’t get stuck in the cheap dealership mentality eventually he can grow from there.

Yes, dealers and consumers only care about price these days. Relationships, MAP policies, and agreements be dammed the new age is upon us. Maybe I have the worst business plan because I haven’t done what everyone else has done and hired ten people to sell direct to the public yet, but I still believe in the store, the store owner, and in the customer experience of walking into a shop. The guy that works from his basement, has no overhead, undercuts you day and night, so clearly this message is not for him or the ten guys that will come to my booth this year at Dealer Expo to ask if they can buy without a store. Do not worry I will be nice to them and the politely send them right over to the competitors booth.

So I say yes open a new store, but you should know a few things first.

I believe the store offers a buying experience for vehicles. It has to offer service and warranty for any brand that wants to be more than a third tier Chinese private label. Anyone not looking to make a quick buck needs to offer indemnification of their dealers, liability insurance, full EPA / DOT compliance, and respect the minimum dealer territories set up by state laws. They should also not drop ship products or own company stores that compete with dealers on vehicles or parts. Sadly only first rate companies comply with this these days and a few suppliers like Kymco and CF MOTO. This is also a very big strain on these companies to be fully compliant so it comes down to the new or existing dealer to support the brands that support them.

So do we still need dealers? Again, I believe the answer is yes. Online sales cannot provide service. They cannot do Pre-Delivery Inspection the way it needs to be done.
That cup of coffee, hot dog, free ice cream on Saturdays is the experience people love. They go to the store to hang out and look at bikes. Maybe they will buy some jackets, gloves, or even a scooter toy.

Online only cannot give a face to the company in remote markets. So before opening a new scooter dealership you should always have a checklist. Hopefully this article will help.

Opening a new repair shop checklist
1. First you are going to need plenty of capital.
2. Location, location, location. Probably the most important thing to do is find the best location with the right permits.
3. Invest in the Mechanic bays
4. Find personnel, for a single operator make sure you can meet demand.
5. Get insurance. Liability and garage no matter what.

Now the main decision. Vehicles

Do you want to sell new? Only used? What brands to carry? Do you get a Dealers license or a repair shop license? Franchise 1st tier brands or 2nd tier

6. So you sell new or used – Now you need Consumer Financing
7. Check to see if the brands have insurance, indemnify the dealership, does their insurance cover you from other dealer lawsuits, do they comply with state lemon laws, do the vehicles have current and valid EPA certificates? You have a right to ask for all this at the Dealer Expo or before buying.
8. Do you need floorplanning? This one can make you or break you. They don’t call it “Get’s Everything” for nothing. Check each company before you decide. Most brands can ask for this, but if you have cash you might not need it.

Beware Before Buying Expensive Services:
Advertisers have control of the industry. Remember everyone wants to sell you something. I do as well, but I also rather you stay in business.

So when an Industry Efficiency expert suggests you spend $30,000 on software for your store think about it twice. If someone wants to send specialists to your store for a week and train your employees, find out what you’re getting first.


1. Bait and Switch. Biggest issue right now is people selling say an Aprilia online or on Craigs List only for consumers to get to the store to find a Chinese imitation, consumers report this back to suppliers.
2. Bogus Fees and Paperwork. Dealers that charge bogus fees, DMV fees that don’t exist, or don’t pay state sales taxes get shut down all the time. Do not get creative with these things nothing good can come from it.
3. Falsifying Warranty work even in the second tier industry is the fastest way to get blacklisted by reps. They talk to each other.
4. Keep a good relationship with your sales reps. Don’t be dismissive when they visit you. I know one scooter sales rep that in ten years has worked for seven brands he knows everything there is to know about every dealer. One rep in particular saved me $40,000 and kept me from closing. I had a store send us a bogus check for merchandise in 2004 that had left the warehouse already, that rep called me to tell me the store was giving bad checks from fake accounts and saved us. How did he know? It cost him his job the previous week when he got a bad check.
5. 1st tier brands like Honda, Yamaha, Suzuki have procedures that if you don’t follow your warranty gets disqualified, there is no back and forth debate like there seems to be in the 2nd tier brands, do not debate every claim.
6. The largest scooter dealer in my town falsified 1/3 of all his warranty claims, he used his warranty as a credit line and would return parts to his suppliers that were two to three years old constantly with threats of not buying any more units if didn’t get paid. Eventually it got old and everyone on the distributor side found out. His own mechanic ended up working for suppliers and told the story and eventually it lead to his downfall.
7. Our company purchased several distributors, when I opened the files of some of the companies we purchased the same names came up over and over again as to people who falsified claims, would bad mouth brands online, and filled bogus lawsuits. One bad mechanic can cause a lot of trouble for an operator make sure you don’t have someone who likes to file claims to make more money. DO NOT GIVE OVERTIME ON WARRANTY WORK TO MECHANICS, give no incentive to employees to falsify this stuff.

The final question is will you sell online?

This right now is the biggest issue facing all scooter dealers. Let’s get something straight online is not for everyone. It takes work. So unless you want to work on it, do not do it.

You cannot beat the distributors that compete with you, at least not legitimately. It might work for the guy sitting at home with no overhead, no employees, no expenses, and no long term drive for the industry but it will not work for you. So unless you invest in it, it will not work.

1. Buying a website does nothing unless you manage it. A PSN website is just that a website. You are drop shipping the same stuff everyone else is. Actually most of your distributors on there sell direct anyways so you cannot beat them.

2. You have to invest time, differentiate yourself and strive to give parts / services the other guys don’t do.

3. Customization works. When you sell parts for vehicles other people don’t, sell original parts others can’t get, or do something different you will succeed. Be it a Ruckus or Vintage Vespa building a niche market is the way to compete and grow.

So you got a website, you picked products. You know which brands have MAP policies and which don’t. Great you’re off to a good start.

I don’t care about online It doesn’t affect me and What are MAP Policies in the Scooter World?

I hear it everyday. Online doesn’t affect me. I don’t care about the discounters. The funny thing is after ten years and watching over 2,000 people come and go from the business. Watching 300 plus scooter only dealers close. I’ve seen more stores open and close than most people realize. I’ve watched people make fortunes and other loose everything in a year or two. So when I have a small shop tell me on the phone “I don’t care if my supplier competes with me.” I don’t think they realize where this advice is coming from.

You also have to keep in mind who you are talking to. The high end dealership doesn’t want to hear they need to service Asian bikes to stay in business. The low end Chinese only dealer possibly selling Grey Market or non-EPA compliant vehicles doesn’t want to hear they should clean up the shop and make it nicer. It sometimes falls on deaf ears.

In Europe right now dealers in Spain and Italy have closed in record numbers and surviving ones barely make it on service. They make nothing on parts. Scooter dealers there compete with distributors and factories selling direct to the public. Even Malossi now sells direct online and everyone has a cousin who works at a location bringing the margins down even further. It’s a sad endless chain of distributors and dealers pushing margins down where consumers buy a part online or from a rep and then pay someone else to install it.

The same has happened to America as the proliferation of online only stores that drop ship PU, Tucker, WPS, and a million brands continues to expand. For the sake of full disclosure we’ve also dibble dabbled in drop shipping and probably have the highest standards right now as to who we sell to. The bad economy put distributors in bad situations like what do you do with someone who purchased the minimums, but then closed his store and works from home? How do you continue to sell someone who no longer has a mechanic? A dealer who pre-sells inventory takes consumer money but never drop ships your product and then consumers call you upset? What do you do with a dealer who purchased $5,000 this year and now quit his dealership to get a job full time and put his wife and son to answer the phone and sell parts? I mean ridiculous situations.

MAP Policies and why you should care:
Minimum advertised pricing (MAP) policies. Some companies cares, most these days don’t. You should find out who you are talking to at the show. Also, if you have a distributor that owns physical stores and an online store that sells direct can he really enforce them?

1. I have a terrible time enforcing MAP, so do most people. This is the truth. You have to trust people. I get an email from one dealer complaining about another, you investigate, you ask him to change his website. It changes for a week and next month he does it again.
2. So MAP is there, but is it enforced?

Thanks to the internet riders are shopping for PG&A on a national level, raising the competition for all dealers. So the Internet does affect you. They don’t care about your costs, your family, your employees, and I hate to say it but even the nicest customer will bad mouth you online if he feels you gave him a bad price. This is the reality of the business. I’ve seen emails from consumers to dealers saying “If you don’t lower the price I am going to trash you on the message boards.” What to do in this case? Some dealers budge and even sell at cost. If you know me, you know I would say offer him a compromise, if he doesn’t agree. Loose the sale. Sometimes it’s better to loose the sale than to compromise your business.

This is the only industry where smaller repair shops have gotten used to the Ebay mentality. They call another dealer and say I need to buy a throttle cable for a Honda. The guy answering the phone has never done business with him and he’s already asking for a significant discount. Immediately he tells him he can buy it cheaper in China or from another supplier. Now this is all true, but we have to meet minimums to qualify.

Let’s get something straight, we’re not meant to do business with everyone. To be a member of Sam’s Club you have to pay a yearly membership. That’s a good business strategy for them because over 50% of their profits are from the membership fees. You don’t like it, go elsewhere.

Second. Requirements.
WPS, Tucker Rockey and several other big name distributors have looked the other way in recent years selling to people working from home and not checking to see if the dealer closed and some guy still buys and drop ships all day despite working from his house. As the industry contracts this was a necessary oversight as distributors looked the other way. Minimums and complying with requirements are about to come back. The sales reps are visiting dealers again and shutting down fronts and people selling from their homes because they have come to realize it kills their traditional dealers. Distributors and sales reps that don’t enforce this are only asking for pain. The truth is several distributors have been on expansion mode for years just cannibalizing each others sales and killing the dealers.

Parts Unlimited never budged on this. You still have to buy the $5k minimum a year and it’s worth it from every dealer I talk to. Even if you have to compete with Dennis Kirk and other issues, you still need it.

The scooter industry is in shambles. Most distributors don’t care who they sell to and will sell retail all day long. Most exhaust manufacturers in the USA sell more on EBAY than they do to dealers. The respectable ones have dropped WPS, Tucker, even PU and started focusing on direct sales to the public because it’s more profitable than selling to the dealers. That’s the sad reality. This is all in the endless circle of pain caused by the deterioration of the OEM = Distributor = Dealer = Consumer chain. Now it’s factory in China selling on EBay, Pro-Summer working from home drop shipping (in his mind a garage with two scooters equals a business), and the Dealer trying to import scooters and batteries on his own to save a few dollars. This is also quickly coming to an end as EPA sends out fines.

However, parts suppliers especially ones in Asia have no respect for traditional supply lines anymore. They hire agents, they set up fake companies. It is growth at any cost. They sell to WPS, PU, Tucker and others and find ways to sell around them. Nothing personal it’s just the way they do business. Still these techniques invalidate any marketing or hard work our industry does. It’s like all the fake Joe Rocket and Moose items you see on Ebay. It kills the livelihood of people in the business.

In the last ten years not a month goes by without some story of a dealer trying to go around a supplier contacting the factory in Italy, a third party, or a parts manufacturer to buy direct. It’s so common that dealer’s think they are being cute when in reality it just costs you points with your suppliers. If you support you brands they will support you. This leads me to my final point today supporting the brands.


The biggest mistake new dealers make is they go brand crazy. Some things to avoid at Dealer Expo.

1. Avoiding eating territory. The guy that goes to the dealer expo and buys from 10 suppliers to lock up every territory for every brand to prevent competitors. Then he sues distributors and others when they try to get rid of him because in three years he buys ten units. This technique never works and builds you a bad rep. Avoid it.
2. Avoid the Discount Mentality. The guy who wants every new cheap Chinese scooter and buys them all. If all you do is buy every brand you do a terrible job at representing any of them. You won’t get support. Kymco won’t spend money to do an open-house if you only purchased 20 units, nor will Piaggio or any other brand if they know you have ten brands. It’s better to have 3 or more good brands and one price point brand than to have ten.
3. Do right by the brands and they will do right with you.

So before picking up a brand remember it’s more than just price. It’s about the experience and keeping the store profitable.

I should have more at the Dealer Classes this year sign up:

We're going to discuss all this. How to build a scooter culture. How to avoid the trap of the online competition, and mainly how to stay profitable in this market.
A round-table discussion on "Maintaining a Profitable Scooter Shop" will be hosted at 2:30 p.m. Friday, Feb. 18, by Josh Rogers, co-publisher and vice president of marketing for Scoot! Magazine, and Joel Martin, president of Martin Racing Performance at the Dealer Expo 2011 next week.

The round-table will discuss current and forecasted sales for imported scooter brands from Europe and Asia.

How to buy parts for scooters
How do I build a sense of community
Should I carry EV scooters
Where do I find parts for this and that Chinese scooter brand
All these questions will be on the table next week at the Dealer Expo

The presenters also will provide tips on how to sell unique brands, ensure parts availability and provide seamless parts and service support for customers. Rogers and Martin promise an extensive Q&A session with the audience.

Located at Room 131
Friday, February 18
2:30 pm - 4:00 pm
Maintaining a Profitable Scooter Shop

Saturday, February 19
2:30 pm - 4:00 pm
Maintaining a Profitable Scooter Shop



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