Hard To Make A Buck In Service These Days

The average vehicle on the road today is 11.4 years old, says IHS Automotive and its Polk subsidiary. The average mileage is around 140,000. Dealers should seek them out aggressively.

“Other than engine oil changes, air and cabin filters, a set of front pads or set of tires, there is little work to be done on newer vehicles in the customer pay category, and there’s little gross profit to be gained in labor or parts,” notes Ed Kovalchick, president of NetProfit, fixed ops consultants.

“Toyota says customers are six times more likely to buy another car from the dealer if they also use the dealer’s service operation, which obviously makes service retention very important. But to increase service profits today the key is to attract the second and third owner vehicles into the shop,” Kovalchick says. “That’s where the significant service and department gross profit is.”

That plan is supported by Bob Atwood, a dealership management instructor with NADA Dealer Academy. “Market dealership services to most every make and model,” he says.

First move? Remove or adjust policies and processes that make it hard for customers to do business with the dealership: Keep service open showroom hours and open weekends. It’s legal to sell service on Sundays in states having no-Sunday car sales laws, Atwood notes.

Give consumers access and control by offering online service menus and appointment scheduling, mobile write-up tools, and multiplatform communications solutions.

Dealers have added quick service to attract the basic oil change, tire rotation, and inspections, but they generate little profit on first-owner vehicles. On high-mileage vehicles, inexperienced techs or trainees assigned to these stalls often miss identifying service opportunities more seasoned techs would not, resulting in missed revenue opportunities.

“It’s easy to knock the techs here,” Kovalchick says, “but when a manufacturer and/or dealer constantly advertises ‘no appointment necessary’ there inevitably will be a significant line of vehicles with owners expecting to be in and out in 30 minutes or less.? That pressures everyone to hurry through the process, and then skipping profit-making steps become more important than doing the job thoroughly. CSI measurements regarding time create even more stress because they create an unrealistic expectation.

Consider these hints:

• Increase service stall productivity: Kovalchick notes the average stall overhead of $10,000 per month in many operations. Most quick lane stalls don’t cover expenses. And volume – with the right kind of work — is key to the remainder. “When the clock hour income is measured by output, which is often 30-40 percent, the calculation includes those figures multiplied by the very low maintenance labor rate and the effective clock hour rate is less than $25, while the techs are collecting $14-$18 including benefits per hour. How many bills can you pay with that situation?”

Service technologies provider Xtime says dealers use only 75 percent of service capacity. Based on NADA data, the average dealer’s unsold service capacity is worth $400,000 a year in high margin, service revenue.

• Focus on process: Turnover wrecks services’ ability to front knowledgeable advisors who build customer trust and rapport through multiple visits, and who can explain service recommendations so customers understand and accept their value. Save customers time by using an appointment scheduling system, service lane iPad and other write-up tools.

• Focus on staff: “Too often I hear from staff about their managers, they ‘don’t listen’ and ‘they don’t respond.’” Kovalchick says. Employees should be the priority, since they actually handle the customers’ needs. When the industry had tremendous customer retention, management knew the business of taking care of both the product and customer well. Management was integrated into the everyday workings of the operations they managed. They were, to put it straightforward “proactive,” and integrated into everyday activities. That’s changed he says, with too many managers desk bound and not aware of the ongoing workings within the operation.