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.....