Overall Service Improvements Translate To Bottom Line Profits
Over the past 24 years, Gerald Martin has covered just about every base there is in the service department at Alton Blakley Ford: technician, dispatcher and, for the last 10 years, service manager. He can also tell you in a heartbeat when he hit the high point of that 24-year stint in Somerset, Ky.
“The last two months have been the best ever,” said Martin with considerable enthusiasm. That’s welcome news at a dealership where the service department had essentially flat-lined in sales volume over six years. It’s also no surprise to Martin, who’s been working with three consultants sent in from DealerPro.
“We kinda got stale,” admitted Martin. The four service advisers at the dealership were all doing solid work, but sometimes they’d wind up making decisions for their customers and would often quietly put off work that could wait until later.
All that changed three months ago, though, when DealerPro showed up for its first week of training.
“We’re not hard selling it,” said Martin. “We tell customers, ‘this is what you need and you make the decision.’ If they don’t want it, we offer to set them up later. The first month, we took off. We went just like gangbusters.”
His average of 1.5 work hours per repair order (RO) shot up to 2.2 hours as every car coming in was given a thorough inspection. It also didn’t hurt that the service advisers switched to straight commission.
“Before, they were paid a salary plus shop hours, and we took them off that and put them on strictly commission: five percent of what they sell,” said Martin. “That’s been wonderful. They really got fired up.”
That’s exactly what Don Reed, who runs DealerPro, wants to hear. It’s also a message that he’s been proselytizing with fervor at dealerships around the country.
“The Detroit Three are hurting pretty bad around the country, and dealers need to maximize service and parts,” asserted Reed, “We think the service adviser is one of the key positions in the dealership. He either keeps customers coming back, or he’s running them off.”
To get a better understanding of what dealers should be doing in the service lane, Auto Dealer Monthly asked Reed and several other top consultants in the business to list their top recommendations to dealers. These consultants have had years of experience totting up the good, the bad and the ugly of America’s service departments. They were happy to share their thoughts.
Processes and people
Scripts won’t work in the service lane, he added. Greeting someone in the South, after all, is done differently than greeting someone in New Jersey. But there are specific steps everyone should follow.
Service advisers should concentrate more of their time communicating with customers face-to-face and less time on the phone trying to diagnose a problem they can’t see or really even understand. It’s up to the service adviser to train the customer to understand what kind of maintenance schedule their vehicle needs based not only on the make and model but also the kind of driving conditions that challenge a car. In San Francisco, for example, cars need more maintenance on brakes while vehicles in the dry Southwest or the snowy Northeast are going to need different kinds of work done to keep their cars tuned for the road.
DealerPro starts off by giving the service department a thorough inspection. Profit margins have to be focused on to make sure they’re in line with NADA guides for the twenty group program. That requires a survey to make sure a dealership’s pricing is competitive with the area. Then they go to work to increase sales per repair order.
“Therein lays the conflict with a lot of people in our industry,” said Reed. “I don’t care what other people think; I know what it can be. We strive to get service advisers’ sales on customer pay only in the 2.5 hours-per-RO range, and we do that consistently.”
So consistently, added Reed, that service advisers average a five-tenths of an hour per repair order improvement in the first 30 days of training.
Spending time with the customer
“The big thing that we run into is that dealerships are understaffed,” said Larry Edwards, who runs Edwards & Associates Consulting. Dealers typically expect a service writer to handle 25 ROs a day, while taking the time to up-sell the customers and manage quality control.
“We have to get the staffing right,” added Edwards. “The industry guidelines are 20 to 25 ROs a day, which probably hasn’t changed in 25 years.” Edwards suggests cutting that to 12 to 15 ROs a day, so the adviser can do a better job of up-selling. Increasing your staff allows writers to get more hours per repair order, and they’re making customers a lot happier in the process.
“The more time an adviser spends with a customer, the better they’re going to feel,” he added. “[Advisers] can make sure customers understand everything, handle callbacks, and go over the bill when the customer comes in. They have more time on their hands to listen to what customers say and do a walk-around on the vehicle. They also have the time to call the customer and keep them informed and go over what needs to be done on their next visit.”
According to Edwards, one of the best ways to give the service advisers time to do their job properly is to hire appointment coordinators to handle the phones. Not only does that take the adviser off the phone for routine calls, it sets up a career path in the service lane: greeter to coordinator to service adviser.
The one thing that all the consultants can agree on is the need for training.
“The biggest mistake I see is that there’s no established leadership and processes put in place,” offers Jeff Cowan, head of ProTalk. “People are told what they’re expected to do and no one trains them how to do it.”
The processes and methods that are in place at dealerships can date back 25 years, and dealers can be reluctant to commit the kind of money that’s needed to bring their service operations into the 21st century. That mindset can be a big obstacle in service, added Cowan, particularly when dealers start out with the wrong ideas.
“Service advisers have never been seen for what they are,” he said, “which is sales people. Dealers will train their sales people up front, but not in service.”
Even when an outside consultant steps in, said Cowan, service managers can be reluctant to push major changes in the way they do business. They’re often too afraid that their service advisers will simply get angry and leave.
According to Cowan, to do a thorough job at improving operations he needs to go in, assess the business and then design a process that’s easy to understand. Then, he trains people and follows up with more sessions to make sure everyone stays on track.
“I never met a service adviser or manager that didn’t want to be successful,” Cowan said. “But service departments usually have an astronomical turnover rate for advisers, often because they were told they’d be making $4,000 to $5,000 a month and wound up making about $2,500. Then, when they asked how to improve their performance or customer ratings, they’d be told things like ‘Make a better presentation’ or ‘Be nicer to customers.’”
“They’d be told what to do, but not how to do it,” Cowan said.
Don’t just train the service advisers. Make sure everyone in the service department – drivers, cashiers, everyone – is trained to handle customers. “Everybody needs to be sales minded,” said Cowan. “Create a sales culture so that everyone can handle the customer.”
If you want to improve the performance of your service business, said Lee Harkins of ATcon, “the first thing would be to not focus on the business.” The service business at dealerships is needs-based, he explained. The customer driving onto your lot already knows he needs an oil change. He doesn’t need you or anyone in your service department to sell them on that.
But selling anything and everything is exactly what’s emphasized the most.
“Making everything you can get them for is not good for long-term business,” said Harkins. Instead, refocus on giving the customer the best service in the least amount of time possible. Also, make sure your prices reflect a fair amount for the service. Increasing your prices may give you a short burst of income, but it could permanently alienate customers you need to grow your business.
“The way we work it,” said Harkins, “is that we start with an evaluation first and we custom-design the program to the needs of the dealer. Our business comes from referrals, which puts pressure on us to make sure the dealer gets a return on investment.”
But the returns can be substantial and come in a variety of ways.
“Just think about how much it costs a dealer to advertise enough to draw 100 potential customers onto their lot”, said Harkins. “But if you have the kind of service operation that keeps bringing paying customers back to you over and over again”, he added, “dealers will see a big payback in low-cost store traffic.”
“We work with relative improvement,” Harkins said. “There are a lot of people out there who say you should have this number of hours, etc. That’s all, in our opinion, misleading from the standpoint that no one can say that until they understand your operation. A service department is never fixed; it never reaches its full potential. You need to keep driving improvement.”
At a minimum, though, you should expect a net profit of 10 percent of sales. “We’ve got clients running 20 to 30 percent net to sales. Those dealers are few and far between,” said Harkins.
Learning from your dentist
“When they follow up,” said Martin, “it just keeps you focused. We have been with other consultants, when they don’t come in every month, and you lose focus.”
Martin is also learning some fresh approaches to generating new business. Dealers can drive more business to their service operation by boosting their efforts at promoting it without throwing extra dollars at it.
“Most dealers don’t need to spend more,” said Reed, “they need to reallocate, assess what they’re currently spending on the front end and compare that to their fixed operations. The front end has the lion’s share of the budget. We look for ways to reallocate the front end back to fixed operations. The average dealer spends $500 to sell a new car,” he said. “Based on our research, they’re not spending $5 a month to keep the [service] customers they have. It just makes sense to reallocate money to keep customers coming back.”
Outreach programs can be created to help people set up new appointments for service when it’s needed or bring old customers back in for new work. It’s nothing exotic, noted Reed; adding that the programs he advocates are modeled on the same kind of contact efforts used by his local dentist.
“We also look at direct-mail programs and we also work with them on point of sale materials, maintenance menus and scheduling the next appoint,” Reed said. “People walk out of the dealership with an appointment card for their next call. Keep customers coming back.”
Vol 5, Issue 7
Recapturing lost revenue is the first step toward fixed ops profitability. Use this four-step process to reduce or eliminate wasted tech hours, declined services, inefficient scheduling, and lost tire sales.