Revving Up Fixed Ops in A Down Economy

Economically speaking, Newton’s third Law of Motion – for every action, there is an equal and opposite reaction – is certainly applicable today. Applied to the automotive industry, the action is decreased vehicle sales and the reaction is increased sales in service and maintenance. The question is: Are customers bringing their vehicles to you or your competitors for service? Now is the prime time to rev up fixed operations to gain more service and maintenance market share and recoup lost profits from decreased vehicle sales.

Time for a Tune Up

Many dealers could benefit from simply tuning up their fixed ops processes already in place. How often do dealers or fixed ops directors put themselves in the customers’ shoes or ask themselves, “What do the customers want?” Customers want service that is reasonably priced, convenient and completed in a timely manner.

Today, most dealerships have oil changes competitively priced, but what about brakes, batteries, wiper blades, etc.? Experts suggested dealers check their pricing to determine if their prices for common repairs and maintenance are competitive. A few calls to the local Jiffy Lube or Grease Monkey will determine whether dealership pricing is competitive. According to Hal Scott, president of the Automotive School of Management, warranty work has significantly decreased and maintenance work has increased. Most of the aftermarket shops perform such maintenance work, often at a lower price, so dealers need to be competitively priced on these line items to gain more market share.

Some dealerships may not be staffed properly to allow for competitive pricing. When evaluating technicians, consider the levels of warranty and maintenance work the dealership performs. According to Scott, the C- and D-level technicians can perform the majority of maintenance work, so if the bulk of a service department’s repair orders (ROs) are for maintenance, the dealership should have more C- and D-level technicians. If the average skill level of technicians is disproportionate to the average skill level required, the dealership is probably paying A- and B-level technicians top-dollar to do C- and D-level repairs. While maintenance work will sometimes require a top-level tech, Scott stressed, “Make sure you give the right work to the technician. Match skill and interest to the tech.”

Mark Beaton, CEO of MBA Dealer Services, said, “There are still some [service departments] that have not extended their hours to evenings and Saturdays.” Those that haven’t are missing out on potential profits; their dealer and aftermarket competitors down the street are open later, making them much more convenient for customers.

Completing work in a timely manner is also critical to meeting customers’ expectations. If a service advisor knows a special-order part is needed for a customer’s repair, the advisor shouldn’t tell the customer to come in before the part is at the store. Beaton said when advisors tell customers to bring their vehicle in that day, “the customer expects to get it back today, but doesn’t,” adding that’s one way to lose customers. He suggested managers and advisors review their scheduling practices to determine if they hinder customer convenience.

One aspect of fixed ops dealers can fine-tune to improve appointment scheduling and customer satisfaction is parts inventory management. If a dealership’s parts department manages inventory well, the fill rate to the service department should be around 90 percent, said Don Reed, CEO of DealerPro Training Solutions. However, many dealerships don’t manage their parts inventory that well. Dealers should work to increase the fill rate, so the service department can schedule more same-day appointments and provide the quick, convenient service that customers have come to expect. Plus, it will help eliminate lost sales because too often when a department special-orders a part, the customer doesn’t return for the service.

To improve parts inventory management, parts managers need to better monitor the dealership’s parts usage. Bob Schreiner, senior vice president and CFO of Dealership CSI, said in most dealerships, 70 to 85 percent of the parts are lumped into one category in the system, which can impede parts inventory management and ordering. He suggested parts managers separate parts into more categories like mechanical repair parts, accessories and boutique items. Too often, those are all grouped together when in reality they are all very different.

Schreiner said, “There are several systems that do a great job ordering parts,” but oftentimes, the dealership doesn’t use its system to the best of its capabilities to simplify and improve parts ordering. He said if the person in charge of ordering parts is spending an hour or more modifying a parts order generated by the system, that’s a sign that the system isn’t properly set up.

Better parts inventory management also leads to reduced parts obsolescence. To further reduce it, Schreiner suggested parts managers identify which customers are generating obsolescence and why. Typically, he said there are two reasons: the customer doesn’t have the money to spend or the customer wasn’t willing to wait for the vehicle to be fixed. While it’s tough to fix the problem of the customer not having the money, if dealers improve their parts inventory management, the problem of customers not wanting to wait for the repair should somewhat solve itself because (as mentioned earlier) better inventory management should lead to an improved fill rate.

To determine other areas that are in need of a tune up, Reed suggested service directors and managers get out of their office each day to help write ROs, work the service drive in the morning during peak hours and spend time in the cashier’s window during its peak hours in the afternoon. Not only will it give management a different perspective, but it’s also likely to help them improve the process for the customer and employees, thereby improving customer satisfaction.
 
For managers and directors who are operating at full capacity, Scott suggested they “question everything they do with their time every day” to determine if all duties are necessary. Some of the duties directors and managers have always done over the years may not be necessary today, and their time might be better spent with employees and customers. Scott used the boat analogy—if you quit performing one duty, is it going to poke a hole above the water line or below? If it’s above the water line, that duty may not be as important as getting out on the drive and interacting with customers.

A fixed ops tune up should also include review of advisors’ pay plans. Reed said, “I think the most significant move to save money [in the service department] … would be to move to performance-based pay plans instead of salaries.” He sees a lot of departments with salaried advisors on “cruise control.” He suggested advisors’ pay plans be structured so that 40 percent is salary-based and 60-percent is performance-based.

Jeff Cowan, president of Jeff Cowan’s Pro Talk, Inc., also suggested performance-based pay plans for advisors, but instead suggested advisors be gradually weaned off salaried wages to 100 percent performance-based pay plans. He said, “Too many mediocre service advisors are making way too much money.” Of course, transitioning advisors to a performance-based pay plan should not be done without proper sales training. In fact, Cowan suggested, “Train everyone in the art of selling.” He said all fixed operations should be managed with a sales-oriented mindset.

Full-Throttle Sales

The dealership must continue to work to increase sales even further. Reed said, “You have to give 100 percent of [service] customers the opportunity to say yes to an additional purchase like the finance office does.” To do so, he suggested advisors use a menu selling approach.

Menus should be one page in length and include all manufacturer-required maintenance and additional recommendations based on local area driving conditions. On average, Reed said dealerships that implement menu selling in the service drive – and actually present menus to 100 percent of customers – see hours per RO increase by a half-hour, resulting in a 35 percent increase in sales. An added advantage to menu selling, he said, is that it trains the customer on necessary maintenance. “We’ve trained them on oil changes. They need to be trained on other service points,” said Reed, adding that the vast majority of customers don’t read about the maintenance required when they purchase a new car or warranty.

Cowan stressed the importance of teaching service advisors how to sell. He said the average hours per RO is 1.7 and that most dealerships are capable of handling 2.5 to 3.0 hours per RO. He stressed the importance of menu selling and only offering the products and services a customer needs. He said many dealers have had success selling extended warranties on the service drive. He said they’re the “easiest thing to sell,” adding that some dealers see up to 80 percent penetration.

Good customer service generates repeat business and service customers are much easier to retain than sales customers. Scott added, “Customers come back to service advisors they like, trust and know. It’s about the service, [and] it’s about the relationship.”

To get customers back in the service department, experts suggested the following:

1. Hold car care clinics
2. Deliver special coupons or discounts via e-mail campaigns
3. Monitor special order parts and reschedule as soon as the parts arrive
4. Monitor declined suggested repairs and reschedule as soon as possible
5. Include your service department on your dealership Web site
6. Put hang tags or floor mats in all vehicles with service incentives

Reed suggest dealers reallocate a small portion of the overall advertising budget to fixed ops to cover the cost associated with these initiatives or other advertising campaigns.

When running an ad in the newspaper, Beaton suggested advertising “everyday prices,” so customers know they don’t have to hunt for a coupon and can come in anytime. He also said dealerships need to market all services including the ability to repair other makes of cars, the body shop, and accessory sales and installation services.

To ramp up accessory sales, the experts suggested two locations to display accessories—the service drive and the showroom floor. In the service drive, Reed said more dealers are displaying wheels and tires, adding, “You’ve got to let customers know you’re in the accessories business because all the research shows most accessories are aftermarket.” He said, like service repairs and maintenance, dealers must be able to install accessories quickly and be competitively priced.

There are two ways to display accessories on the showroom floor—in a boutique and on vehicles. While many dealers have a boutique to sell accessories like hats, t-shirts and other manufacturer-related garb, Schreiner said they don’t rearrange and update their boutiques often enough. He suggested they update boutique items at least a few times a year and offer a clearance section. He said 50 percent of boutique sales are near the holidays and if customers notice dealers changing out their boutique inventory or see a clearance section, they’re more likely to purchase year-round.

On accessorized vehicles in the showroom, Schreiner warned against over-accessorizing one vehicle. Instead, keep it modest; just add one accessory, like a set of wheels or running boards if it’s a truck. Overloading one vehicle can significantly increase the sale price of a vehicle, and some salespeople might avoid selling that vehicle altogether.

To give salespeople incentive for selling an accessorized vehicle, Scott suggested offering them additional commission. He also suggested stressing to the sales department that the accessories can be removed from the vehicle at no cost if a customer wants to purchase it sans accessories.

Retooling

While slightly improving processes, advertising, and evaluating staffing and pay plans are important aspects of revving up fixed operations, sometimes processes need to be more thoroughly retooled.

As mentioned earlier, most work performed in the service drive today is maintenance work that can be performed by C- and D-level technicians. Because of this, many dealerships have implemented a quick lane or quick service department for such work over the past couple of years, and Scott sees the popularity of this continuing to grow over the next two years. Reed said such a department can be a very lucrative profit center for upsells, adding that many aftermarket shops average $40 to $80 per RO, most of which were only for oil changes before the upsells. 

Dealers and fixed operations managers should also review expenses. One expense many stores can save on is uniforms. Schreiner said he knew of one dealer who saved $6,000 on uniforms alone. In some cases, the dealership is still paying for uniforms for employees who are no longer at the store, and in others, the dealer can save money by simply ordering different uniforms.

Managers could discover substantial savings by switching providers. Scott said dealers should request bids twice a year from three different providers for all expenses. He added to make sure the bids are in writing and to give the providers a response deadline.

Reed suggested adding one step to the process in every department to increase profits—an inspection. Many service departments have access to inspection checklists, but don’t use them. He said if every vehicle the dealership works on is inspected, additional sales are sure to follow, and each inspection only requires about 10 to 15 minutes. This also allows the different departments to cross-promote. For example, when dents are discovered, the advisor can introduce customers to the body shop when they come to pick their vehicles up.

In addition to cross-promoting, the experts suggested cross-training employees, especially in dealerships that have been forced to reduce staff. While Cowan suggested everyone should at least be cross-trained to write a RO, Scott said, “There’s no reason we can’t hire intelligent people and train them to work in all departments.”

Cowan also challenged service advisors to self-educate themselves on their own time, instead of always relying on the dealership for training. He suggested advisors set aside time each week to train themselves, which can be as simple as reading for an hour a week. “If you want to do more, you have to put the time in yourself to get better,” he said.

When hiring service advisors employees, Scott suggested taking a different approach. He said today’s service advisor needs to have good customer service skills, and too often, dealerships hire advisors based on their service experience. He said it’s easier to train people on the service aspects of the job than it is to train customer service skills.

For dealers looking to rev up fixed operations to supplement profits in a down economy, there are several departments and processes that can be tuned up, marketed better or retooled. Which department could use the most revving up in your store?

Vol. 6, Issue 4