June 2011, Auto Dealer Today - WebXclusive
For buy here pay here dealers, fixed operations present some interesting challenges. The challenge starts with whether you are new to the buy here pay here (BHPH) business or adding a BHPH operation to your current dealership. If you’re affiliated with a new-car dealership, chances are you already have a service department in place and can utilize that facility for reconditioning, service and repairs for your BHPH operation.
One of the challenges with that scenario is getting the reconditioning of your BHPH vehicles done in a timely manner. The service department is an important profit center for a new-car dealership, and generally customer-paid work takes priority over internal and warranty repairs. One of the keys to making this work for the BHPH operation is to develop a relationship with the service manager of the new-car facility. Communication, planning and priorities are all items that help the relationship function effectively.
Clearly defining the degree of reconditioning with the service manager is part of the communication process. Most successful BHPH operators will focus the reconditioning efforts on major mechanical and safety-related items. Reconditioning BHPH inventory is not the same as reconditioning the typical retail used car inventory. The objective of a BHPH dealership is to provide safe and reliable transportation. Repairs to minor dings, dents, tears and scratches are usually bypassed with BHPH inventory to keep the reconditioning costs in check. In the absence of clear and specific reconditioning instructions, the service department may do more service work than required, resulting in increased reconditioning costs.
Another important item to work out with the service manager of your new-car service department is the labor rate charged to recondition BHPH vehicles. A discounted, or internal, rate is sometimes seen as the normal course of action for internal work. However, if your priority is to get BHPH inventory reconditioned in a timely and cost-effective manner, you may want to consider paying retail rate when reconditioning BHPH inventory. The objective is simple: remove any barriers to getting your BHPH inventory reconditioned because of conflicts with customer-paid work. The idea here is to become your service department’s best customer!
There are only so many hours in a day the service department can operate. The service manager and his staff are likely paid a bonus on the profitability of the service department. By paying retail rates and providing a significant volume of service work each month, you become the service department’s best customer by default. Another advantage of being the best customer is being able to insist on quality service work. The temptation for the service department to upsell reconditioning work that isn’t required for BHPH vehicles is removed. As a result, you gain more control over the work done and the associated cost. It’s a win-win relationship.
If you are new to the BHPH business or don’t have a service facility associated with your dealership, then you will need to explore and compare the two following options:
1. Building a service facility
2. Subletting the service and repair work to independent repair shops
Building a service facility may be cost-prohibitive considering the costs associated with construction, equipment, required machines and tools, and staffing the service facility.
The more cost-effective option may be to sublet your service and repair work to independent repair shops. However, this is not as easy as it sounds. Finding capable, reliable, honest, experienced repair shops requires footwork. You will need to visit several facilities and develop relationships with the owners before you agree to work with a shop. In most cases, you will require a different shop for mechanical work, air conditioning work, transmission work, body/paint work, and specialty work like front-end alignments.
You must educate the repair shops on the degree of reconditioning you want for BHPH inventory. Sending a vehicle to an independent repair shop without specific instructions can result in excessive and unnecessary repair costs. A good habit to get into is spot-checking vehicles at the service shops after the estimate has been submitted and before the reconditioning work is approved. You may find that brake pads flagged to be replaced are well within safety standards, or some oil leaks that require replacing a gasket, according to a technician, may be nothing more than seepage (something that’s common on many older, high-mileage vehicles). Regular spot-checks will not only save you money on unnecessary repairs, but also demonstrate to the repair shop that you aren’t going to approve all repairs listed and will be diligent about keeping repair costs under control.
A word of caution here about relationships with independent repair facilities. Do not get too complacent with approving estimates. The moment you stop doing spot checks on repair estimates is when reconditioning costs will start to creep up. You want to believe that the garage has earned your trust and the work they’re doing is legitimate, but I would bet that if you asked a roomful of BHPH dealers if they’ve made that mistake, you would hear some interesting and costly testimonials.
Volume 8, Issue 4