Article

The Cure For Losing Customers

September 2007, Auto Dealer Today - WebXclusive

by Don Reed - Also by this author

Many dealers across the country are experiencing a serious decline in their service traffic which results in declining service and parts revenues. This decline is coming from the warranty customers as well as the retail customers, and it seems to be getting worse. Look at your repair-order count for the first six months of this year and compare it to the first six months of 2006 and 2005 to determine whether your customer count is going up, going down or remaining constant. It should be going up, but if it is going down then you must figure out why and decide what you’re going to do about it. 

To begin with, let’s look at our industry’s trends for the average dealer over the last five years, as reported by the NADA Industry Analysis Division.
Service and Parts Department Sales Data
2006  2005  2004  2003  2002 
New Vehicle 
Department Sales
 $18,795,482   $19,469,000  $20,116,264  $19,359,130  $19,651,091
As a % of Total Sales 59.0%  60.2%  60.9% 59.9%  59.6% 
Used Vehicle Department Sales $9,265,399 $9,067,128  $9,090,534  $9,142,647 $8,942,973 
As A % of Total Sales      29.1%  28.1%  27.5%  28.3%  28.6% 
Service & Parts Department Sales  $3,794,920  $3,782,334  $3,802,537  $3,795,081  $3,681,518 
As a % of Total Sales          11.9%  11.7%  11.5%  11.8%  11.8% 

Note the variances between 2002 and 2006 New and Used Vehicle Department sales are insignificant. However, we must acknowledge that there has been some serious erosion in market share among some manufacturers, but on an industry scale not much has changed.

Looking at service and parts department sales, we see very little change as well. But “how does that make any sense?” Think about it! The average dealer is selling over $27 million in new and used vehicle department sales per year for five years totaling in excess of $135 million, yet service and parts sales have remained essentially constant. Where are all of these customers going for service and parts? Why aren’t service and parts sales going up each year? More importantly, what is the number of vehicles in operation in the U.S. that are driven by potential customers for the new car dealer?

Research shows that the median age of vehicles in operation in the U.S. is about nine years for cars and about seven years for light trucks. Total vehicles in use are at their highest levels in history totaling over 244 million. So, with a record number of vehicles on the road with a median age of 7 or more years, why isn’t the new car dealer thriving in the retail service and parts business? The answer is: the aftermarket service facilities. There are about three times as many aftermarket facilities as there are new car dealers, so they are more convenient for the customer. The aftermarket competition has had constant growth year over year since the 1960s and is currently getting about 70 percent of the retail service and parts business totaling around $45 billion in sales.

As you can see, there is plenty of business out there to be had, so why don’t you go after it? Do you believe the aftermarket sells their products and services so cheap that you can’t compete with them? Nonsense! Do you believe their technicians work for less money than yours? Of course not; you can hire the same people they do. So what’s the deal?

The deal might be that many new car dealers simply don’t care enough about their existing customers to do what is necessary to keep them coming back year after year. According to NADA, the average dealer last year spent $364,619 in advertising for an average of $590 per new vehicle retailed, which I believe is a new record. I wonder how much the average dealer spent on advertising and marketing to service, parts and body shop customers who already own the dealer’s product, know where the dealer’s located and at some point in time liked doing business with the dealer.

What is your marketing strategy to go after those lost souls who haven’t been in your service department during the last six months? Are you giving them reasons to come back? They are going to spend $45 billion in the next 12 months on servicing their vehicles somewhere, so would it not be a good thing to go after this very lucrative customer that will give you a profit margin of at least 70 percent on labor and 40 percent on parts? Understand that you don’t necessarily have to spend more money on advertising, but you do need to reallocate some of your existing advertising dollars to properly support service and parts in order to hold on to your existing customers and bring back the ones that have left.

A declining repair order count is a sure sign of a cancer growing in your dealership’s future. The good news is that this cancer is curable for the dealer who cares enough to do something about it. Why don’t you get the right processes in place to build owner retention, get your staff properly trained, and then hold them accountable for their performance so you can provide every customer with the highest level of service possible on each and every visit to your dealership?


Vol 5, Issue 8

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