Tom,
You have to divide by .85 (although I beleive dividing by .88 is more accurate) Think of it this way:
You have X HP at the flywheel. Using your drive line loss number of 15%, at the wheels you have X - (X * 0.15).
588 - (588 * 0.15) = 500 HP
or
500 / 0.85 = 588 HP
The difference is that you lose 15% of the flywheel HP, not 15% of the rear wheel HP.