Fixed Operations a new year, a new role

[TheOne]

I have been promoting for years largely to deaf ears how to "recession proof" the dealerships. Now that the economy has fallen into recession the bottom of which is no where in sight, and our industry is leading the crash it seems interest in my views about how to turn a sows ear into a silk purse is now of great interest to those that have recently purchased hearing aids.

Fixed Operations must now become the new "front door" of the dealership environment. Some of you may want to debate this, but the fall of the sales departments is now affecting all manufacturers, and although we may see some short term relief, it will not last. Sales departments will never again sustain a dealership. If I am wrong in this regard, those Dealers that take my advice and alter their businesses accordingly will be financially positioned for exceptional profits. If I am right those that do not head the warning will close or be absorbed at bargain basement prices or bankruptcy sales.

So how do we "recession proof the dealership? Lets start with a simple but frightening paradigm shift. Fixed Operations must become the primary profit generators for the dealership. In order to really understand what this means, gross profits, and net profits can no longer be evaluated good or bad based simply on improvement over prior reporting periods. Instead evaluation must be made working backward from the total dealership fixed expense. NADA provides an excellent guide for determining allocation of fixed expense per department. Although this guide assumes a vehicle sales market much different than the one we are currently experiencing, it is so under-utilized that it should be a real eye opener for most Dealer Principles as well as most Managers. Working from these guide numbers will help establish realistic gross profit requirements as well as provide departmental expense budgets for EVERY dealership. Whole store management must view these numbers as REQUIRED for economic survival.

With budgets established all but a few dealerships are going to need major improvements to Fixed Operations gross profit and departmental net profit numbers. With regards to GROWTH there are only two ways to do this. They are:
1. Maximize the return on my current customer base.
2. Increase my customer base.
Most Managers naturally opt to work on increasing the customer base. Its pretty easy to sit back and argue that either I am already selling everything I can to my current base, or to sell more will drive my customers elsewhere. In all of my years working with Dealers all over the country I have found these arguments to be all but universally false. An opinion held as fact produces nothing more than a closed mind that is just plain wrong. If you are selling an average of 2.5 to 3.0 hours per repair order measured against your posted labor rate including ALL customer paid repair orders, and your effective labor rate including ALL repair orders is within 5% of your posted labor rate congratulations you need to build traffic! As for the rest of you which will be most of you, there is much work to be done.

To effectively maximize the return on your current customer base a myriad of issues need to be considered, competitive pricing, gross retetion percentages, work mix, labor rate, etc, etc. Lets tackle it one step at a time in a reasonable dialogue. If you wish me to continue to participate in the dialogue please limit the comments to thew scope I will establish below. We can bring ancillary issues such as CSI, pricing strategies, and scheduling, among others AFTER we have thoroughly discussed service selling.

There are three distinct sales opportunities that must be taken advantage of with EVERY retail service customer, and two with every warranty customer. They are:
1. Original concern.
If dealt with properly the average customer original concern is worth aproximately 1.2 to 1.5 hours of flat rate labor as measured against the posted labor rate. Please also keep in mind that the original concern parts to labor ratio should be very nearly 1:1.
2. A well developed maintenance system is worth .8 to 1.0 hours of flat rate labor per customer paid repair order as measured against posted labor rate with a parts to labor ratio of aproximately .6:1.
3. A good vehicle inspection process properly established at the time of write-up is worth 1.0 hours of labor as measured against the posted labor rate with a parts to labor ratio of aproximately .8:1.

As you can see if the service drive is hitting on all cylinders 3.0 to 3.5 hours per repair order on existing customer traffic should be more than the goal, it should be the benchmark of a properly operating service department.

Having said all of that I invite questions and discussion.....

[X476]

The One,

I will agree 100 percent with you that fixed ops is now the front door and we have to take the bull by the horns. I am a parts manager so at this time I cannot tell you where we stand against your calculations but I can say that this morning the fixed ops managers met and we have said screw the standards we are shooting for 75-80% expense absorbsion. We are forgetting the phrase we have always done it that way and are leading our employees to Customer Focus. We are stepping up all expectations for every fixed ops employees, even the car porters. I will gather my information to see where we are at. I for one would love any and ALL ideas on what everyone is doing. My Service Manager and I are in the same boat on this and are willing to work together to make the decisions needed. Also I do appreciate your frank and to the point attitude. Some my get there feathers ruffled but when you tell it like it is there little chance of mis-communications.Keep up the GREAT JOB

[sallen1]

Ah, food for thought and a homework assignment! I will have to report our numbers when I get back to the office.

One thing hard for dealerships to manage is the balance between capacity and demand placed on the system. What this means is... do you have the people/infrastructure in place to handle your customers when they want service?

If 3.5 hrs per RO becomes the benchmark or standard (up from about 2.0 per RO) and you still get 40 customers per day, do you have the capacity to flag the additional work (140 hrs per day up from 80) ? This would be 14 Techs running at 125% efficiency. You probably only have 8 or 9 techs amd may not be able to handle the business, even though the traffic has stayed the same.

But this is a good problem.

s

[TheOne]

Sallen1 you are getting ahead of the game! work the current numbers first, and I will show the balance...

[Gasser]

Soooo..... You have the following:
Check for engine noise(accelerating)
Found worn/loose A/C belt
R&R A/C belt
Top off 1/2lb Freon
Upon Inspection we found the following:

1) Diff seal leaking
2) Front shocks leaking

TOTAL-$300 APPRX

How do you get TODAYS customer to come back?

Just askin?

[btk]

Gasser,

Here is my process now,
1-Main concern-check for noise when acclerating-estimate provided.
2-check service history,discuss any maintenance needs. advise customer and ask for the sale
3-check for any recalls-free work-tell customer what you are doing
4-ask customer while we are addressing your main concern if they would like a free 29 point inspection with results to be discussed upon completion of diagnosis.
5 If yes, this sets the table for a follow up phone call, if no-perform repair on primary concern and do not recommend anything-do business on customers terms.
6-If customer says yes to inspection ,follow up call should address prime concern first then any recommendations and we use the dreaded term for some folks here -RIM (repair, Inspection, Maintenance) when we do an estimate.

All recommendations that were declined will be noted on the repair order and follow up will be done within 1 week-7 days then a follow up 30 days later to remind.

No guarantees in the system, but it is about being consistent in your approach.

[TheOne]

Gasser,

The customer that spent $300.00 will gladly come back if they found $400.00 worth of value today!

During the write up I would have asked for a $200.00 authorized amount to fix the original concern. Based on your comment this was probably the belt. You should have had no trouble repairing this for less than the authorized amount.

If you properly prepared the customer for the inspection at the time of write up the additional freon would have been added in combination with dye in order to look for a potential leak next visit. The freon and additional repairs, shocks and diff seal should be no problem selling as a value based on your total charge of $300.00.

I would have sent the customer home feeling that todays original concern AND additional repairs were a bargain, which in my mind they were. As a matter of procedure the order of operations would be:
1. At the time of write up ask for an authorized amount of $200.00 plus tax and supplies. "If I can fix it for that or less I will call you when it is ready. If it is going to be more than that I promise I will call you right away." At this point the customer leaves feeling like the original problem is going to be repaired, and the $200.00 is already spent.

2. Again at the time of write up I would show the inspection sheet from a distance (so I can retain the customers attention) and tell them "While we have it here I am going to look over the rest of your vehicle. If anything comes up that you need to know about I promise I will call right away."

3. I would have the Tech do the inspection prior to looking at the original concern. I would total the cost of the findings, and call the customer back. "Mr. Jones, we have done the inspection just like I promised. We found it needs $200.00 worth of repairs."

4. The customer will ask questions regarding the found work, and hesitate to authorize them because you have told him nothing about his original concern. When he asks "What about what I brought it in for?" I would tell him "The Tech is looking at that now, if you will authorize this additional work I promise we will not touch it until we have effectively dealt with the original concern." Remember you authorized up to $200.00 plus tax and supplies, and if it is going to be any more than that I promised to call you right away. Authorizing this work now makes it much easier to get your vehicle back to you more quickly.

5. Your customer would have authorized the additional work. You would have done it all for the $300.00 and you would also have been a $100.00 hero at the cashier window.

That is how I would and do get todays' customer back again.....

[Gasser]

Well Stated....Everybody should consider this as a gold nugget.Soooo Lets move on..
Whatta say "The One" And oh yea Happy New Year & give my best to DP....

[sallen1]

TheOne,

One thing we are tracking is "work declined". If the $300 job was declined it is recorded in the system with a reminder set to call the customer. Need a few weeks to see how this is working.

We are pretty flexible on the drive to accommodate the customers needs without the hard sell. Some people are just out of money.

Also trying to expand service marketing to surrounding areas where dealerships have closed. Trying to increase the number of customers while working with current customer base.

If I can get my true fixed coverage from 70% to 90%, I'd be pretty close to recession proof.

s

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

[Tyler Robbins]

ALWAYS remember that by simply coming to your Service Operation the customer has already made 'some' purchase decisions.

As hard as we've being working on changing the perception, there is still the belief that the dealer is more expensive.

----- This has a definite advantage for us in this case:

Those customers who do come in to the dealership, could have just as easily gone to some backyard mechanic or a chain aftermarket BUT THEY DIDN'T!!!

That customer has already CHOSEN to do business with you and more than anything, they want to know that in "spending more" with you, they must feel that they are in fact "getting more"...

When a customer claims they dont have the money (realizing that they came to the BIG EXPENSIVE DEALERSHIP) - are they really saying they dont have the money? I think they are telling you that you have NOT justified why the customer needs to invest their dollars with your service Department!

That's not an "economy" concern, that's a sales-value presentation concern - and you need to deal with that no matter what the economic realities are!


In life - we dont all shop at Wal-Mart for everything, even when times are tough or money is tight, not because Wal-Mart doesnt have low prices but because we dont get the quality, value or Service at Wal-Mart.