18 • July 2023 • Powersports Business

The good news is that , based on data reported to us , 2023 is looking like another strong year for powersports dealers . Margins and nets remain strong for most dealers , employee productivity is strong , and overall expenses are tracking close to 2022 numbers . PAT KENNEDY By the basic income statement numbers , things are looking very positive for the majority of dealers . Compared to last year , the average performing dealer ( by net profit ) is reporting a 7.6 percent net so far this year , while the top 20 percent is checking in with a very healthy 12.0 percent .

But in all categories we see a potentially concerning trend developing . Inventory levels are rising rapidly , resulting in slowing turns and pointing to a future of increased carrying costs and declining margins . Our data indicates that dealers would be wise to return to the best practices of inventory management , making sure that it becomes a regular topic at all management meetings .

How quickly things change ! It seems like only yesterday dealers and manufacturers alike were scrambling for product and everything that hit the lot had a willing buyer ready to take delivery . But dealer inventory levels have effectively doubled since this same time last year and with more manufacturing capacity coming online soon , dealers can expect increased urgency from our manufacturing partners to maintain or expand buying programs .

The industry norm of interest reimbursement programs helps keep manufacturing normalized in off season months by reducing dealer carrying costs . Without question , these programs can be valuable for dealers as well , especially in a time of rising interest rates . But IR programs also mask the true cost of inventory . Over-inventoried dealers often find a rude awakening as inventory comes off program and full interest charges

and curtailments are due .

The answer is not complicated , but it ’ s also not easy . Dealers need to implement inventory management planning that gives them visibility into how much inventory they need , when they will sell it , and how much it will cost to keep it in stock . At first glance this may seem impossible with the typical manufacturer ordering program , but it really isn ’ t . Consider the sales and inventory plan below , based on annual sales of $ 7,500,000 for a product :

It all starts — like so many other things — with a great annual sales forecast . Starting from this number , we can determine our monthly sales objectives and AI goals using seasonal trends , and from there it ' s a matter of plugging in purchases to determine monthly turnover . In the example above , the dealer takes delivery of three major orders throughout the year , and while the inventory spikes as high as $ 4.3M in May , you can see that it tracks back down very nearly to the starting point by the end of the year . This example assumes flat gross margins throughout the year , but if the dealer noticed actual sales falling off of budget , he might decide to get more aggressive at some point in the season .

This is powerful information that could assist any dealer in their inventory planning process . The key is understanding that inventory management is more than just guesswork based on last year ’ s sales . It ’ s a methodical process that begins with a serious sales projection and a thoughtful consideration of the timing and size of manufacturing ordering programs .

Spader Business Management is a leading management training and consulting company that specializes in helping businesses achieve greater success and fulfillment through improved business results and leadership capabilities . Pat Kennedy is a Spader 20 Group facilitator and a consultant who previously owned a successful dealership . Comments or questions can be sent to : articles @ spader . com .