The Service Department Business - To Be Or Not To Be...

August 2006, Auto Dealer Today - WebXclusive

by Chuck Bonanno - Also by this author

If there is one hot topic at any one of my Twenty Group meetings of Buy Here Pay Here Dealers, it is the question of owning and operating a service department/business. The answer is really quite simple. Yes you should, and No you should not. There’s nothing like a straightforward answer. The truth is, before you take the leap into this new business that may take away from your core business, answer these questions:
  • Will This Be A “Profit” or a “Cost” Center?
  • Do I Have Any Expertise In Car Repair and Service Shop Management?
  • Do I Have The People In Place To Operate A Profitable Shop?
  • Do I Have The Systems In Place To Operate A Profitable Shop?
  • Do I Have An Understanding Of The REAL Costs Involved In Operating A Profitable Shop?
Dealers who are successful in the retail business, finance business and service business all have one thing in common. Each aspect of their business is a moneymaker. The service business must be approached with the same forethought that you put into entering the Buy Here-Pay Here business. If you think you will save money, get better quality work done and get your repairs done faster just because you do them yourself, why don’t you do the same with telephones, gas, oil, office machine maintenance, computer repairs, etc…
Are you starting to get the picture? That logic by itself doesn’t make much sense. We must operate the service department/shop as a for-profit business.
It will be helpful if you have a general understanding of how automobiles work, how to repair them, how to determine if you hired a competent technician and a general idea about the cost of parts, tools, and equipment. We have seen many dealers get into the service business as novices and through diligent training and constant education, become masters. Be ready to learn a whole new business if you do not have a service background. If you do not possess the knowledge to operate a profitable service department/shop, you will need to do so.
I also see dealers who do their own service work and yet don’t even have a system for repair orders or parts inventory. If you don’t have enough headaches and chaos in your life, then this might work for you. You will need to manage everyone, everything and every dollar to do this business efficiently and effectively so you better have a system in place before you take the service plunge. You must have a quality system in place to manage your service department/shop and it should be in place prior to your entry into the business.
The costs associated with operating a profitable and productive shop go far beyond the space, a lift, some tools and a mechanic. The costs involved in operating a service shop include supervision salaries, technician salaries, tools, lifts, basic supplies, additional office supplies, additional software and workstations, tire, oil and waste removal, dramatic increases in all insurances including workers' compensation insurance and audit/accounting to mention just a few. The glamour is starting to wear off, isn’t it? You must evaluate ALL costs associated with the operation of a profitable service department/shop before entering the business. Those sublet repair costs might not be that expensive after all.
What I’m really saying is that running a service department or shop is in fact operating another business and must be run as a for-profit business, or the costs almost always outweigh the perceived benefits. If you only want to do internal work and customer warranty work; but no retail work, you’ll need to model the business based on the levels of business you can expect from those sources. Compare those revenues to the costs of opening and managing the service department and add in all the headaches of more insurance, more workers' comp, more personnel issues and then make the “informed” decision. Do not make the decision to enter this business lightly or hastily.
In conclusion, I have many dealers who are profitable at or above benchmark levels who have service departments and just as many dealers who are profitable at or above benchmark levels who have never had service departments. The truth of the matter is that we can be extremely profitable in the Buy Here Pay Here business with or without service but, if you have your heart set on being in the service business, do your homework before starting.

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