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

[Tyler Robbins]

Bob,

In an effort to respond, I have pasted your email below and responded line by line.

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?

TR - "Fixed absorption, also referred to as fixed coverage, is the percentage of labor gross profit in relationship to the entire dealerships fixed, semi-fixed and non sales department related variable expenses. This is most often represented as a percentage."

TR - So, in my understanding of this definition, ALL Dealership Expenses EXCEPT Sales Department "variable" expenses, which to me is Sales Commissions, including GSMs and Sales Managers, F&I Managers Commissions, Floorplan Expenses, Vehicle Advertising, Vehicle "policy" and thats about it. Salaries for the dozen Managers every dealership seems to have, plus the F&I Managers, GSMs, etc are all personnel expenses which should be factored into the Total Expense to be absorbed!

TR - With most dealerships Semi-Fixed Expenses, it the total is simply split departmentally based on some arbitrary percentage, so realistically other than those expenses listed above - everything else should be factored into your fixed targets.



How, is this number figured?

Total Fixed Gross/Total Dealership Expenses

NOT INCLUDING:

COMMISSIONS ONLY for: GSMs, Sales Managers, F&I Managers, Salespersonnel and any other personnel who get any kind of "commission" from vehicle sales.

VEHICLE POLICY Expense
Floorplan Expense
VEHICLE ADVERTISING

And what can I do with that number to drive me and my TEAM?

TR - I know you well enough Bob that when you HAVE the Target - you know how to structure your personnel's incentives to acheive it!

Other questions concerning Expense Control and any feedback?

TR - Too many dealerships, when they get into cost-cutting mode, start chopping away at the least expensive personnel, almost implying that these folks (porters, detailers, shuttle drivers) are a "luxury"... To me, they are necessary personnel, not a luxury!

TR - These TEAM players are often responsible for the difference in service that the a CUSTOMER can see.. ie. Cleaned vehicles on Service Visits - Vehicle valet to the door, etc. Service Consultants are available when customers arrive not bagging and tagging and parking a car in the back 40!

TR - When these TEAM Members are cut, EVERYONE feels it and it adversely affects a dealerships Customers...

TR - There are many OTHER ways for a dealer to save $8-$12 per hour ($64-$96 per day) without having to sacrifice customer service! I have an extremely effective Expense Management Process I will gladly share with you - just email me.

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

TR - not sure what you are asking here.

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

TR - Shop Supplies collected SHOULD be credited back to this account, however, most dealerships (incorrectly) simply add the collected Shop Supply Dollars to their gross profit line, which also overstates their gross profit percentage (Gotta Love those 20 Groups)

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?

TR - If TRUE Absorption is the goal, than this Semi-Fixed Expense, whether split amongst the departments or left solely in Service is somewhat irrelevant. However, from the perspective of looking at each Department as its own profit center, then I agree whole-heartedly that Loaners (for parts ordered, back ordered, mis-ordered) should be shared with Parts. In fact, logically speaking, if Service pays 100% of a loaner because they didnt get to it, then parts should be 100% of a loaner if they dont have parts)

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?

TR - For both Policy (on broken items) and lot damage - many dealerships have created a "slush" fund kind of thing. (Similar to Demo Clubs from years past) when all technicians pay into the "fund", something along the lines of $5 per week or $10 per week. This "fund" is then used on the whole to offset these types of expenses. This has its advantages and disadvantages of course, but if the intention is to have the personnel cover "accidents", than with this method - no one person takes a big hit at once and the dealership doesnt have to carry that receivable either. Of course, if your expenses are more than your fund consistently, you may have specific "individuals" who require some "management" or you need to raise the weekly contribution.

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

TR - Ahhh - the eternal debate. Those who know me know how ineffective I feel HPRO is as a measurement, and if you are transitioning to CP Dollars per RO collected, it really is of little difference to HPRO. HOWEVER, if you measure ALL PAY TYPES HPRO, then at least you're measuring EVERYTHING. Its not a great measurement either, but considerably more effective than only measuring one pay type.

TR - Realistically and ideally, it is a Fixed Operations Managers role to be the HEAD COACH and then, by definition, Coaches are supposed to work with individuals on their specific areas of opportunity. Simply saying "Get more hits" is not coaching, "Get more Triples" isnt coaching either - A coach needs to identify where their players are in need of "work" and then "work" to those needs - I have an Incredible Tool for this too - just email me, I'll share some information on that too!

Everyone knows that I am extremely long winded - but I hope my two cents worth at least sparked some ideas and thoughts!

[sallen1]

I replied in the dealer forum but

fixed coverage on the GM statement , pg OR8 is calculated by the total fixed gross divided by total expense (not including G&A). So if there is only Owners pay in G&A you have a pretty good number.

It does cover the variable expense which in a way is good. If you can get 90% + fixed coverage, you have little to worry about.

s