So you want to increase your fixed ops net, and you’ve decided to start by saving your way to increased profits. Good choice! This is one of the easiest and yet most difficult challenges in fixed operations. Why? Well, it’s easy to pick up an invoice or look at the monthly counter ticket and start identifying things that require some scrutiny. The hard part is the relationship.
Vendors and dealers are like married couples. After you’ve been together for a while, it’s hard to point out what’s wrong and not offend them. You don’t mean to do it, but it happens.
So let’s be fair: Consider everything and anything —including uniforms, mats, rags, cleaning supplies, toilet paper, paper towels, every kind of chemical imaginable, fast-moving items like fuses, bulbs, and zip ties, and nuts and bolts — on the back-counter parts ticket. Scrutinizing all your shop supplies equally, you must determine three things:
1. Do the Charges Match?
The amounts charged on your vendor invoices should reflect what was received and used by the shop. In some cases, they won’t.
For example, there is a prevalent phenomenon I call “mat creep.” It happens like this: You didn’t order an extra mat, because you don’t need it, but suddenly, there it is. Instead of four mats, you now have five or six. No big deal, you say? Well, each mat likely costs you $5 to $7 a week. Add that up over the course of the year, and you will find you’re paying $400 to $500 for no reason.
I picked on mats first, but it happens across the board with all types of vendors. You just need to start somewhere.
This is how you find the overcharged undelivered items and the delivered overcharged items. Both are cause for attention and adjustment. It requires diligence and constant monitoring. You must pull invoices and reconcile the amount of what was ordered with what was received.
I have all invoices affecting fixed operations cross my desk, and I sign off on them before it goes to the business office. If you (or your managers) get into that habit, you will find the dollars you are wasting.
2. Is the Ticket Accurate?
If you haven’t looked at your shop supplies ticket in a while, you may find there is a lot of stuff on it that should not be there. I once walked into a store and, during my initial evaluation, found the shop ticket had ballooned up to $4,000 a month — that’s $48,000 a year!
I couldn’t believe it. This dealership simply had no controls for this critical function. Everyone assumed this setup was perfectly normal. It’s not!
We put several checks and balances in place, and that shop ticket dropped to an average of less than $100 a month. I still wasn’t all that happy, but it was progress. Of course, the service advisors asked, “What about the customer that comes in and just needs a bulb or a fuse? Can’t I just go get a bulb or a fuse and give it to them?” The answer is “No!”
Remember, the dealership did not wear out that bulb, fuse, sun visor, airmass meter, or tire — which I have seen that on a shop ticket a time or two. It is the customer’s responsibility. Once the advisors and technicians understand that, your shop ticket costs will fall — maybe even to near zero.
How about all those cans of brake clean? Zip ties? Shop rags? Are you keeping a close watch on them? Some stores have instituted a “one-for-one” policy on rags: Each tech gets a bundle of 25 each week, then gets another bundle when they bring back all the rags they’ve used.
It may not seem like a lot — until the monthly or semiannual reconciliation on your linens invoice happens. You may find those rags add up to hundreds if not thousands of dollars per year. And don’t forget about the fender covers.
A lot of shops have gone to a one-for-one policy on brake clean too. Each can costs between $2 and $3. And we all have the one tech who uses 2½ cans per brake job. Just think about those numbers for a second. If your store does five brake jobs a day, that’s $15 in brake clean. At 220 working days a year, that’s $3,300. You could buy a lot of stuff for $3,300.
You may consider all this the “cost of doing business.” I get it.
But when you break down for the technicians, advisors, and parts personnel how much stuff costs, and you show them the numbers, and then you tell them things like “We need a new tire balancer, and it only costs $3,300, but we spent that on brake clean,” it gets their attention.
3. Is the Team Onboard?
Your personnel must look out for the best interests of the dealership. That means demonstrating loyalty by reducing costs. I have worked with several parts managers who took a very dim view of discounts and parts not getting installed on the vehicle after they have been ordered, among other things.
And I have worked with advisors who felt that same way. They did not like it when they had to discount a repair order or give away something because of a diagnostic error or a mistakenly ordered part, no matter whose fault it was.
There is no experience like the parts manager handing you a flutenator valve and telling you that the technician who ordered it just told the back parts counter he didn’t need it to fix the vehicle, but he is charging your department for it because your tech ordered it. This is how parts obsolescence gets controlled. No manager wants that heat once the numbers show up on the books.
Making sure you have the right technician doing the job they are properly trained to do goes a long way toward reducing these scenarios as well. And of course, there are other considerations: Discounts, price misquotes, and misdiagnoses all qualify as expenses that can be controlled. It is up to the department leader to put effective processes in place, monitor those processes, and inspect them frequently.
The bottom line is this: If you want to control the costs associated with running a thriving service department, you need to inspect what you expect, educate everybody on what things really cost, and hire and keep good people who have the dealership’s best interest at heart.
Leonard Buchholz is the founder of CarBizCoach. He helps dealers meet performance objectives in service sales, CSI, and profitability, and has extensive experience in evaluating fixed operations and providing corrective training and guidance. Contact him at [email protected].