Many dealers are looking at non-traditional revenue sources to bolster their bottom line.
One notable example is Frank Kent Motor Co., a 2-dealership, 5-franchise Fort Worth, TX, operation owned by 30-year-old twins Will and Corrie Churchill.
They opened new revenue centers: Frank Kent Pit Stop and aCorp. Accessories Distributor Installer (ADI) center.
Frank Kent Pit Stop is a 23,000-sq.-ft. (2,136 sq.-m) standalone detailing, reconditioning and accessories sales and installation business that opened in 2001. It services vehicles from its own dealerships as well as conducts retail business. In 2005, it reported sales of $2.1 million, of which $750,000 was retail.
The ADI operation generated $6.9 million in sales. It handles GM accessories for nearby GM dealers. It started in 2004 as a 25,000-sq.-ft. (2,322 sq.-m) facility. A 20,000-sq.-ft. (1,858 sq.-m) expansion is in the works.
GM created ADIs to stock, distribute, and provide installation support for its dealers and to speed up deliveries for accessory customers. The ADIs are owned independently. Many owners are dealers. GM divides the country into 85 markets and it has 41 unique ADIs.
The mother of invention – necessity – created Frank Kent Pit Stop. With space squeezed at the Cadillac store and nowhere for the body shop and service departments to expand, going upwards was the only option. A parking garage was considered for customer, employee and inventory parking.
“That garage would be a $300,000 investment, and after deliberation we decided that was not the best use of that money,” says Will Churchill, whose family owns the dealerships.
Fascinated by accessories, he suggested the money be used to open an accessory business and move the dealership detailing and reconditioning operations from the crowded dealership into the new facility. A vacant Western Auto Store adjacent to the Cadillac dealership was purchased and remodeled for $300,000.
Part of the motivation for the Pit Stop was profit margins were shrinking on new-car sales and the finance and insurance operation was under profit pressure as well.
“On the other hand, the aftermarket accessories business is a huge opportunity that we thought we could leverage to establish a new profit center for the business,” says Will Churchill.
He and his sister are officers in the company and inherited full ownership from their late mother, Wendy.
Frank Kent Motor Co. was started by Will and Corrie’s great-grandfather. Today the twins own Frank Kent Cadillac and Frank Kent Pontiac-GMC-Hummer-, plus the Frank Kent Pit Stop and ADI businesses.
A general manager, Brian Deaver, oversees the Pit Stop, the ADI and Cadillac fixed operations. Connie Duke is full-time manager of Pit Stop. Frank Kent Pontiac-GMC-Hummer-is located across the street from Frank Kent Cadillac and Pit Stop.
Within a year of start up, Pit Stop was generating 60% of its business from Frank Kent dealerships and 40% from retail. The ratio changed recently as the dealership sold more units and pushed them through Pit Stop.
Much of Pit Stop’s GM-authorized accessories are floated by GM for 90 days, but on average the shop’s inventory on an annualized basis is about $175,000.
A repair order is generated when Frank Kent dealership vehicles go to Pit Stop for reconditioning and such. The used-car manager provides input.
That way, Pit Stop is generating business for the service departments and not taking work away from the dealership technicians.
“This way we control costs, keep the profit in-house and relieve some pressure off our used-car managers from all the various reconditioning and detailing vendors hounding them for their business,” Churchill says.
On the accessories front, he says he has stayed away from the competitive sound-system business but has found profits in video and alarm system sales and installations.
The company reports good margins on accessory sales and installation. Tires and wheels sales (including super-size 20-in. and-22 in. versions) average 100%, bedliners 75% and window tinting at about 65%.
Much of Pit Stop’s business from surrounding dealerships is for window tinting and spray-in bed liners. “Many dealers don’t have the proper equipment for these accessories nor do they have the proper equipment to mount oversized tires and wheels,” Will Churchill says.
He says there’s a customer-perception benefit of locating the accessories business away from the dealership.
“Customers are hesitant about buying accessories from a dealership, where they believe they’ll pay too much,” he says. “On the other hand, at least with us, customers have a greater comfort buying from a dealership because they know that if they have an issue, we’ll stand behind them. That’s the beauty of a set-up like this – we’re not associated with a dealership, yet we are.”
He notes too that Pit Stop’s status as an independent operation gives it a competitive advantage because some aftermarket vendors won’t sell to dealerships or will sell at a higher price than they charge independents.
“We leverage both sides,” Will Churchill says. “You want me to be a dealer? I’m a dealer; You want me to be an independent? I’m an independent.”
The company set up the GM ADI program to further leverage its opportunities in accessories sales.
“As an ADI, we are only permitted to sell GM accessories to GM dealers, but both Pit Stop and the ADI have benefited from the other,” he says.
“For example, we became a distributor for certain aftermarket products through our ADI, so now we can buy direct, as opposed to going through a local distributor.
“We’ve had to market Pit Stop more aggressively as a result of bringing the ADI into our territory. We also get competition fromGroup’s Mopar Speed Shop and new accessory programs being initiated by other OEMs, from (American Motor Inc.) to (American) Honda (Motor Co. Inc.)
“Currently, 90% of the vehicles that come through our Pit Stop to be accessorized have fewer than 300 miles (482.7 km) on them, and they come from another dealership to here or to another accessory store because traditionally dealers have done such a poor job at selling and installing accessories.
“This is why we believe the right way to be successful in a business like Pit Stop is to open up a retail accessory store that is physically away from the dealership.”
That also leads to a larger pool of potential new-car buyers for the two Frank Kent dealerships.
“The average dealer is spending upwards of $450 or more per new-vehicle retail to gain a new customer, but at Pit Stop we’re spending just $45 in advertising per new customer,” says Will Churchill. “We’re giving them the Frank Kent experience; we’re capturing their name and addresses; and these shoppers are finding out about Frank Kent.”
The accessories market has been growing remarkably over the last 10 years, according to Specialty Equipment Market Assn., from $16.66 billion in 1995 to nearly $29 billion in 2003.
New-car dealerships enjoy just 17% of this big pie, which leaves a large slice remaining for dealerships to capture from the specialty installation outlets, automotive chains and mail-order accessories outlets that, together, command the market.
Jim Leman is a freelance writer based in Illinois.