Are Your Profits Setting Records, Too?
NADA also states that Dealer profitability has remained flat at 2.5% of sales. Why? How are you doing?
Since fixed operations accounts for roughly half of the average dealer’s gross profits, could this be partially accountable for this flat lining of net profits? If you are a dealer who fits into this category then you have to ask yourself the following:
- Are Customer Pay and Warranty RO counts increasing year over year?
- Are Service and Parts Sales increasing to record levels?
- Are you retaining and gaining more customers?
From a purely logical perspective let’s compare our new vehicle sales of 10-11 million units back in 2008 to 17.5 million in 2016 and somewhere close to that number in 2017. Looks like about a 70% increase in sales volume, right? How does that compare to your increase in service traffic? Shouldn’t your Customer Pay and Warranty traffic have increased proportionately?
As an ex-dealer, I realize a lot of those extra 7 million new vehicle sales came from your existing customers trading in their old cars so let’s say you’re holding about a 40% retention rate which accounts for about 3 million vehicle sales. That still leaves about 4 million new customers who should be driving up your service traffic. These 4 million customers account for around a 40% increase in service opportunities over 2008. Is your service traffic up 40% or more?
Additionally, some of you may recall that in 2008-2009 the auto industry lost somewhere in the range of 3000+ new car dealerships! Not that many years ago we had over 22,000 new car dealerships and today we stand in the 17,000 range so we have lost about 25% of our dealerships and we’ve experienced all- time record highs in new vehicle sales volume as outlined above. Are you experiencing all-time record highs in your service department traffic?
Here at DealerPRO Training, we have worked with over 1000 new car dealers since 2008 in analyzing, evaluating and training their fixed operations teams and I can honestly tell you we have not seen a single dealer achieve a 40% increase in their service traffic. Not one! What we do find is stagnation which means year over year customer pay RO counts remain at about the same level in 2017 as they were in 2016. Sadly, far too many dealers are even losing money in their service departments as exemplified by my recent training presentation to a 20 Group fixed operations meeting with Dealers and Managers where only three out of 20 dealers present were showing a net profit in their service departments! Amazing!
Everyone reading this article has the ability to improve your service operations IF you really want to! As a famous golfer named Bobby Jones once said: “If you fail to get the proper kind of instruction, no matter how much you practice, you’re going to get better at making yourself worse.”
It All Starts with… TRAINING
Think about this question: “Will a professionally trained employee outperform and employee with no training?” Of course they will! So WHO needs to be trained to achieve record results in fixed operations?
- General Manager
- Service & Parts Directors
- Service & Parts Managers
- Parts Counter personnel
- Service Advisors
- BDC/Appointment Coordinators
- Everyone working with the service customer
What is the Value of Training?
It will provide you with a game plan for growth that will increase your retail parts and labor sales with maximum technician productivity (120%) resulting in increased Service Absorption and higher Net Profits but before you start training you must first Identify your opportunities for improvement. Here is an easy to use check list for you to use:
Key Performance Guides Total Customers per Day per Advisor
Gross Profit per Technicians (P&L)
CP Labor Profit Margin
CP Parts Margin
# of Technicians per Advisor
Hours per CP Repair Order 5 Main Shop
Policy Adjustment as % of Service Gross
Service Operating Net as % of Gross
Parts Operating Net as % of Gross
Service Absorption 12 to 15
2.5 Main Shop, 1.0 Q- Lube
Next, analyze 100 Customer Pay RO’s with an equal amount for each advisor and measure the following:
• # with Shop Supplies charged
• # Of One-Item RO’s
• # 0-50,000 miles
• # 50,001 – 100,000 miles
• # 100,000+ miles
• # of Multi-Point inspections
Once you’ve completed this exercise then do the exact same analysis with your used car reconditioning RO’s. If you see where this is going then you’re already laughing out loud!!! Okay so once you have Identified Your Opportunities for Improvement you can now Prioritize what you need to train on in their order of importance and ease of implementation, such as: • Adjust parts pricing matrix to improve margin
• Adjust labor pricing guide to improve margin
• Eliminate unauthorized discounting by Advisors
• Increase Technician Productivity
• Increase Sales per repair order
• Increase # of Service Appointments
Now that you have identified your opportunities for improvement and have prioritized their order of importance you can then Initiate Your Training Plan. Any Training Plan must start with the entire management Team NOT the Advisors and Technicians. For example:
• Implement Daily Performance Tracking for Techs & Advisors (Labor & Parts Sales-Gross, HPRO, Margins, Productivity)
• Managers must conduct Daily Team Meetings with Action Plan (Appt Schedule-Today’s Variables-Current Status vs. Goals)
• Managers must learn to periodically ask the question…….
The question I’m referring to is this: “As your Manager, if there was just one thing I could do for you to make your job more enjoyable and more productive….what would it be?” This is a great question for all employees to hear but especially for Technicians and Advisors. I think you will be surprised at some of the answers you hear! All of the above, of course, must be accompanied by some realistic goals that the entire Team must focus on DAILY. Here are the goals set by one of our Chevrolet dealers in the Midwest:
• Increase CP Labor Margin from 70% to 75%–Achieved 74.3%
• Increase CP Parts Margin from 40% to 45%—Achieved 43.4%
• Raise HPRO by .3 —Achieved + .5 HPRO
• Increase CP Appointments by 20%—Achieved 27.1%
Total Customer Pay Gross Profit Increase of $948,647 for his first year of his training plan! Start building your plan now. Get committed to your plan. Hold your people accountable for following your plan. Get ready for change but most importantly remember…..”you are not running a democracy!”
As John Newberg said: “People can be divided into three groups:
1. Those who make things happen
2. Those who watch things happen
3. Those who wonder what happened”
Which group will you join in 2018?
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