WHILST doing the research for my book, The Growing Years, to be published next year (plug, plug), I have been going back over previous issues of the magazine – and uncovered a real nugget from May 1996 which struck a real cord.
It was an article on a US dealer, Dan Zuerner of Lawn & Garden Tractor Company based in Indiana - and gives an account of a unique meeting that Dan set up with his existing, and potential, suppliers.
At the meeting, he ‘bared the soul’ of his business, fully opening up his books to reveal where he was making money – and where he was losing it.
“This is tough for me,” he told them, “but all the numbers you see are factual”.
He provided a split on the three operating divisions, sales, parts and service – detailing precisely the profitability of each. He revealed that on a $3m turnover, that whilst parts sales accounted for 25% of whole goods turnover, they generated five times the profit.
The agenda for the meeting covered everything from profitability (or loss) on individual lines, warranty, financing, service, staffing, training costs and so on.
He said, “Running a business like this is tough. The problem is that few bankers understand our industry. They want to compare us with the motor trade – and as a result they often consider us a poor risk because inventory levels are too high, profit ratios too low – and we are weather dependent”.
He said that the criteria his bankers wanted him to achieve was to have a four-times plus annual stock turn, a debt to equity ratio of more than 4:6, strong cash flow and a nett profit margin of no less than 2% of gross sales.
“And so we have to be able to work with our suppliers to help us achieve that. Taking on a new product line is like a marriage. The dealer and the supplier must be financially – and emotionally – attached to one another.”
He ended the meeting saying that these were discussions not demands, but an agenda for closer cooperation between supplier and dealer.
Now this was 1996. Conditions were different. Computerisation of businesses was in its infancy. There was a hotch-potch of computer systems from different suppliers. Dan Zuerner’s main gripe was warranty, the battle to get claims approved, the admin time involved, the short-fall and delays in getting settlement.
There is no doubt that business has evolved – and improved - in so many areas for dealers over the past 15- 20 years. Warranty is hardly mentioned as a universal issue these days, yet it dominated the discussions at BAGMA and dealer meetings back in the days.
But the central issue remains. The need for close cooperation between dealer and supplier. Both must understand the business objectives of each other. Dan Zuerner was right. Taking on a new franchise must be viewed as a marriage between two compatible parties. And that requires openness and honesty for it work.
As a footnote. Dan Zuerner, with whom a group of UK dealers (Derek Belcher, Peter Bateman and Robin Sutton and myself) shared a platform at a Dealer Seminar “Dealer Challenges in the US and Europe” held at the 1996 EXPO in Louisville, closed his business in 2001 – and is now vice-president of a leading construction company in Indiana.
