Fixed Absorption-I know what it is-Do You?

[bsilcox]

I know what it is, do you?
I Think 2009 is going to be a great time to kick off discussions about this TOPIC, Service Absorption? Fixed Absorption? I have had many discussions with many of my peers over the years about Service and/or Fixed Absorption? Is there a Published definition as to what it is? How, is this number figured? And what can I do with that number to drive me and my TEAM?

Other questions concerning Expense Control and any feedback?

Equipment and Vehicle Expense: Departmental do you charge day to day Operations about the line on in Fixed?

Tools and Supplies: Departmental do you charge against the amount collected from the repair orders or charge to fixed?

Service Loaners: Is the Service Dept. completely responsible for the cost? Should it be shared with the Parts Dept. or should the entire dealership help with the cost?

Policy Adjustments: How do you control your Service Policy? If a Tech breaks something do you charge them or cover the cost?

Lot Damage: How do you control Lot Damage? Do you charge the employee a portion or 100% of the cost, or do you cover the cost?

Do you still believe that the calculation of HPRO customer pay is the mark or should it be Dollars Collected per repair order??

Some of your GREAT Feedback would be appreciated.

Thanks;

Bob S


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Fixed Ops Rhino



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Fixed Ops Rhino

[sallen1]

Bob,

Service absorption or fixed coverage is calculated on the GM statement, pg. OR6. It is the total fixed gross divided by total fixed overhead before prorate of G&A (the old Col. Z).

Fixed absorption is the amount of dealership expenses covered by your service departments. If your number is more that 100% then everything sold in the variable department goes straight to the bottom line.

One thing, is the prorate of G&A. If you have stuff in this column, your fixed coverage number may be misleading. You could have 100% but still be losing money. G&A has been batted around in the forum before.

On the expense items:

Eqp and vehicle expense are charged to the department that uses it or if for general use (like the DMS) the expense is spread. Vehicle expense to the department that uses the vehicle.

Tools are purchased and used by service and expensed as other supplies unless it is expensive enough to be capitalized (like the alignment rack). Supplies are charged to customer following state law otherwise it's a service expense.

Service eats the service loaner and shuttle cost. Parts pays for the parts truck, body shop has their loaners.

Cannot charge techs for breaking stuff. If non-accidental, then they are written up and can lose job.

Anything charged to policy must be signed by service manager.

Cannot charge employees for lot damage. But they are written up and can lose job.

Hours per RO is a good tracking tool, dollars per RO is just another. Throughput and profit are the ones to benchmark.

The best to focus is fixed coverage. Can your fixed operations pay for the operation of the dealership? For your team, you need to focus on generating as much fixed gross as possible and getting upper management to control the big expenses Employees, Advertising and floor plan.

If they can do it, or at least get close, then you are in control of your destiny no matter what the factory throws at you.

Hope this helps

s

[This message has been edited by sallen1 (edited 01-06-2009).]