Selling Used Bikes – New Money From Old Bikes
by Vance Breese
When I had a motorcycle shop, I was in a small town that had not had a successful Harley-Davidson dealer for at least 10 years. I tried to make all the parts of it work as though they were separate businesses. Each part of the business needed to carry its own financial weight. There were many parts of being in the motorcycle business that I didn’t understand in spite of being connected with the industry for more than 20 years. I spent more than a little time trying to understand where the costs were and what parts supported other parts. One particularly confusing area was how to make money with used motorcycles. I called all the usual suspects to help, but when it came down to it, it was my money, my customers, and my shop.
I believe that the most fundamental part of a motorcycle business is to have customers ride their motorcycles. If they don’t have motorcycles, they can’t ride them, accessorize them, and get them serviced. I bought my agency April Fools’ Day, 1987, and at the beginning, I could get all the new motorcycles I could sell. At that time, though, the median annual household income was $25,000, so not everyone could afford a new motorcycle.
Know Your Sales Costs
All my capital was being applied toward the store’s growth, so I had a real challenge to find a way to carry a selection of used motorcycles. My first idea was to consign motorcycles for customers. This was not going to expand my customer base, and in my town saving money is a major sport, so people balked at the 10 percent I charged to sell their motorcycles. At the time Harleys were getting stolen at an amazing rate, and I would not hesitate to remind them that advertising to potential customers was also advertising to potential thieves. I insured the motor-cycles, had a sophisticated alarm system, and I could accompany the buyer on a test ride.
It didn’t take me long to realize that it cost me around 14 percent to process a motorcycle sale. I would insure them, advertise them, shine them up, and put them on the showroom floor. I’d charge the customer for the tire or clutch that the bike needed. Most times, I stood behind the customer if he had a problem that we probably should have known about. I found that often times my x-ray vision failed me. With all these issues, I’d found a way to lose 4 percent on every bike I sold.
My justification was that the old customer would appreciate what I was doing, and the new customer was more likely to ride and accessorize his new toy. This was really not a reasonable fantasy. The seller would feel that I should have gotten more money, and that any repairs should come out of my 10 percent. And the new owner often introduced me to an unimaginable level of cheap.
I felt lost and confused. As I so often do, I turned to the automotive business for guidance. I was on Main Street, six blocks from Broadway. Like most small towns, there are lots of small used-car lots and a few new car dealerships. They’re mostly on either Main Street or Broadway. I walked to all of the used car dealers I could find and listened to the people that would help. I’ve found that most good business people are happy to explain the things they know, if they know that I won’t compete with them and that I’ll truly listen. I learned, among other things, about the back end of the used bike business.
The Finance And Insurance Business
In-house financing is a wonderful thing, so I found several people who would finance used motorcycles, including a local bank. Don’t be afraid to ask, and remember that each “No” gets you closer to a “Yes.” I discovered that I could usually get around two percent of the financed amount, and the financier would send me the money as soon as I had the paper work properly filled out. This created another opportunity: insurance. A prospective buyer can’t finance his motorcycle without insurance. Managing everything under my own roof made it easier for the customer and more profitable for me.
I went to a two-day insurance school and got my license. It was wonderful because I didn’t need to buy inventory, I always had the correct policy in stock, and I could “install” it the same day. Usually if I called the customer a couple of months before his policy expired, he’d renew and I’d receive another check.
As my business became more established, I worked out a deal with my bank to floor my used motorcycles. Now I could buy them out of town, make a little money fixing them up, and make money on finance and insurance. The money cost me about 1 percent per month so I needed to get around 20 percent gross margin on each motorcycle to make it work. Now I was truly expanding my customer base.
More Moneymaking Tips
It was also a way to keep my mechanics busy during our slow season. I always sold my parts to the used bike department at full list and paid the full shop rate so that I wouldn’t fool myself into thinking that I was making more money than I really was. I discovered that if I accessorized a bike and gave it a custom paint job, it would sell more quickly and I would have to pay the bank less flooring.
My customers would get excited and buy the accessories for their own motorcycles.
I did quite well with classic motorcycles, and I also found that I could make money by leaving a ratty motorcycle ratty and offering a 10 percent discount on any parts the new owner purchased within 90 days. However, we had to be careful that he didn’t buy parts for all his friends’ motorcycles.
Buying used motorcycles that I could make 20 percent gross margin on became a challenge. I would go out of state to where there was bad winter weather, and buy motorcycles in January and February. I had to pay for the buying trips, which cost 30 cents per mile and $200 dollars per day plus expenses, which I added to the end price of the motorcycle.
Being a little creative with advertising helped a lot. I would make sure that the bikes were well-displayed when we started our shop rides. Whenever I could, I’d take a picture of the bike with the shop sign in the background and use it in the ad.
One day, I discovered prepaid service. It seems that everyone thinks that he’s going to ride 10,000-15,000 miles per year even though my customer average was around 5,700. I found over time that only about half of my prepaid service got used, so I could give people a 20 percent discount at the time of purchase and still come out ahead.
I learned early on not to discount the bikes themselves because there was so little profit in them. If someone really wanted a deal, I’d throw in $100 worth of accessories or an even bigger discount for a prepaid service package. I found that if the buyer’s wife objected to the purchase, finding a way to include clothing for her would help grease the wheels.
When I sold the store, used motorcycles accounted for about 10 percent of my gross profit and often outperformed the service department in net profit. I found used motorcycle sales to be interesting and profitable. I didn’t get my margin on every deal, but overall, learning about used motorcycles and taking the plunge paid for a lot of my toys.