Article

Counting On Service

An efficient, profitable parts and service operation can generate steady revenue and keep customers coming back.

August 2013, Auto Dealer Today - Feature

by David Keller, CPA, CFE - Also by this author

Take a bird’s-eye look at your dealership property. What is the largest area you see? For most stores, it’s the service department. It takes all that space for a reason: Maximizing revenue in the service department can help offset the ups and downs of sales and F&I.

Sadly, the service department often takes a back seat when dealers set their priorities. The front end tends to dominate dealership operations because it normally produces the most sales and gross profit. But what happens in the months when the front end falls flat?

When sales and F&I don’t produce, the parts and service departments tend to get more attention from management. When one department doesn’t carry its weight, everyone expects the other departments to make up for the lost gross profits. And when the front end, parts and service sales fall off in the same month, things can get very ugly.

This situation can be prevented. If you pay enough attention to service all the time, it will always do well. Here are six ways to “repair” your parts and service departments:

Do the Math: Determine your sales and gross profits for the year to date. Compare the last 12 months of sales and grosses side by side by running a general ledger account-trend report for the service and parts departments. This will tell you what the volume of activity has been for each month and how much it has fluctuated. If you spot any seasonal trends, they may help predict future sales.

Re-evaluate Your Service Drive: How is your service operation set up? It should be inviting, easy to access, clean and well-lit. It should also be properly staffed, especially at the busiest times of the day. How often have you seen staff walking around at department stores while customers waited in long lines to check out? Annoying, isn’t it? An efficient service write-up area could be restricting your sales volume and driving off potential lifelong customers.

Sell Service: Many dealers are slowly losing maintenance business to third-party shops. Why is this? Most dealerships don’t offer the same flexible service hours as their independent competitors. Most customers have no idea the dealership is usually just as competitive on maintenance work. Dealerships also tend to employ better-trained technicians. Somehow we need to do a better job of informing the public.

Start by selling the dealership when you sell the car. If your team can learn to sell the service department’s capabilities as well as they sell vehicles, you will have a better chance of getting the customer to come back. You will also have an edge on your competitors. This philosophy is not practiced very well in most stores.

Maximize the Space: For every dollar in parts and service sales, the dealership normally makes approximately 50 percent gross profit. This gross profit percentage is much larger than the front-end vehicle gross profit percentage. Of course, vehicle sales bring in larger dollar amounts, but you have to find a way to maximize every stall in your service department. The more sales you generate, the closer you’ll come to 100 percent service absorption.

Get Your Service Writers On Board: Full service absorption is very hard to attain, and it is getting harder every month. This is due to the amount of maintenance work performed rather than repair work. Further complicating the situation is the fact that maintenance work doesn’t generate as many parts orders as repair work. So it takes even more sales than before to generate the same gross profit you did in prior years.

Take a look at the different types of maintenance work your techs perform. Determine what generates the highest gross profit percentage and dollars and make sure your service advisors are aware it’s available. They should have every option in mind when they meet with your customers.

If you can concentrate on the work that generates higher sales and gross profit, it will be easier to replace some of the repair sales you are losing each month. Review your average sales per repair order for labor and parts. See if you can gradually increase it by having the service writers using a full checklist consistently. And that goes for every customer and every vehicle, even when they are busy.

Take Care of Your Customers: You must have an efficient and timely method of informing the customer about suggested repairs and maintenance. Ideally, you want their approval while their vehicle is still in your service stall. You also need to follow up with your parts and service customers to ensure the work was performed to their highest satisfaction.

When it comes to service, every consideration counts. Technicians who change the radio station, leave the driver’s seat out of position or make dirty handprints can upset a customer enough to keep them from coming back — even if the service work was performed perfectly.

Alerting everyone who is going to touch the vehicle of these simple quality steps can keep customers satisfied. Better yet, they’ll be more likely to come back time after time for all of their service and maintenance work. That will generate sales and gross profits for you, rather than your competitors. It will also help smooth out those monthly fluctuations.

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