A recent Fixed Operations Study and what it reveals about Service Sales, Profitability and more...

Recent studies show that Service Advisors that hand out menus during the write up process experience an increase in Customer Maintenance Sales. The study also shows that this corresponds to an increase in the Service Advisors pay.

These recent studies also show that Technicians that completed a Multipoint Inspection on every vehicle flagged more hours than Technicians who did not. An interesting side note to the study, Technicians who completed the most Multipoint Inspections made the most money.

Furthermore, the study revealed that Professionally Trained Advisors had higher CSI Scores than Advisors who received little or no Training at all. In fact, during the study, Customers preferred talking to a monkey rather than an Un-Trained Un-Professional Service Advisor by a margin of 5-1. (Note; no monkeys were harmed in the study and were paid in peanuts for their participation, same as the Un-Trained Advisors)

Customers also preferred to have their vehicles repaired in one visit rather than having to return to the Dealership for repairs later due to an Un-Trained Un-Professional Advisor not being able to reach them during the day to complete the repair process. The Advisors who asked for a Pre-Authorized Repair Amount out serviced and outperformed the monkeys…er…Un-Advisors by a margin of 100%.

Additionally, Dealerships with Trained Professional Advisors had higher Gross Profit amounts than other Dealers who have monkeys... er…Un-Advisors. This was not too surprising to the Professional Advisors and Service Personnel but came as a shock to the monkeys…er…Un-Advisors who blamed the results on “demanding customers and high management expectations.”

One other aspect the study revealed was that Dealers who increased their Gross Profit had a Net Profit Increase as well. And interestingly enough, those same Dealers had an increase in Service Absorption. And the most telling aspect of the study revealed that Dealers that had an Increase in Gross Profit, Net Profit and Service Absorption stayed in business longer than those who did not.

One final note on this recent study…all of the Dealers that had monkeys…er…Un-Advisors working in the Service Department have closed.

The Worth Of A Technician: Comparing Positions In The Dealership

Have you ever taken the time to sit down and actually calculate the real value of an average technician? The value I’m referring to is in regards to gross profit production and customer loyalty, which I hope are on your radar screen every day. If they are not, they need to be starting today. Let’s look at gross profit production first.
An average technician at 100 percent productivity (40 hours produced versus 40 hours worked) will contribute about $15,000 in parts and labor gross profit per month based on our industry’s benchmarks. If we annualized that monthly contribution, it amounts to about $180,000. This is about the same as selling 120 new vehicles per year at an average gross PRU of $1,450 (National Average last year), which is pretty close to what your average salesperson produced last year. If an average technician produces about the same gross profit as an average salesperson, one would naturally assume that each of these people deserve to share equally in the attention received from the general manager and/or dealer, right? Let’s look at some examples of how much these two actually have in common.

Let’s start with performance. If you maintain a performance board for salespeople where you post their sales daily for all in the sales department to see, then I would hope you also maintain a performance board for technicians to measure and post their flat rate productivity daily. Additionally, if you set daily, weekly and monthly goals for all salespeople then surely you are doing the same for technicians, since it is a fundamental part of measuring daily the success of all productive employees both in sales and service.

How about support? In the sales department you need to have a solid, customer-oriented finance department to provide the financing support for putting the cars over the curb. A weak finance department will most assuredly have a negative effect on the performance of your salespeople. Similarly, in the service department, you need to have a solid, customer-oriented parts department to provide the replacement parts for getting your customers back on the road. A weak parts department will most assuredly have a negative effect on the performance of your technicians.

Why is it that the parts department in most dealerships will send a driver in a truck across town to deliver a part to a competitor (wholesale), but they won’t walk 50 feet to deliver a part to their own technicians (retail)? Since the technicians are the primary customer of the parts department, it would seem obvious that providing technicians the highest level of service possible ought to be a top priority. This level of service will have a direct effect on your CSI Report for “Fixed First Visit.”
To often this Fixed First Visit score is misinterpreted to reflect shop comebacks by the technicians. The fact of the matter is that Fixed First Visit has a lot more to do with the lack of parts needed to complete the repair properly; therefore, you must special order parts and ask the customer to return for a second visit to complete the repair. Hence, when the customer comes to “Fixed First Visit” on their survey, the answer is going to be, “No.” Are you evaluating the performance of your support department for your technicians?

Now, back to the salesperson who’s selling 10 cars a month and producing about $15,000 in gross profit. I bet you have processes in place to measure their individual sales opportunities such as the number of ups, demos, write ups, and TOs. You’re probably thinking “how can any of these processes possible apply to technicians?” To begin, measure the number of repair orders dispatched (UPS) to each technician. Every repair order, with the exception of new vehicle internals, should have an inspection sheet completed by the technician to ensure every customer is driving a safe and reliable vehicle. This is equivalent to the Demo. Of course, any needed repairs and/or services found should be itemized on an estimate sheet (Write Up) and presented to the service advisor for review with the customer.

Any customer who declines a technician’s recommendation for these needed repairs and/or services should be turned over (TO) to the service drive sales manager or service manager for a second review with the customer so they understand we are just trying to make sure they are driving a safe and reliable vehicle.

If you implement these processes and measure them daily, like you do in sales, you will immediately realize an increase in service retail sales because your technicians’ productivity will go up. It’s not uncommon for a good technician to reach 120 percent productivity or more. At this level of productivity your technician is now worth about $18,000 per month. CSI and customer retention are on the rise and service absorption just took a big leap forward, which sounds to me like the dealer just got a pay raise!

By measuring the efforts of your technicians daily, several things will happen with your entire service team starting on day one. First, you send a strong message that you care about service. Second, you are looking at their performance daily and comparing that to their goals.

Third, they will be held accountable for their individual performance on a daily basis. Fourth, productivity will increase significantly and so will your net profits. Finally, your service customers will like doing business with you and are likely to become return customers. So, don’t you think it’s about time you crossed over that line separating sales from service and give your service team the attention they deserve?

Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions

Missed Profit Opportunities

In the pursuit of additional profit opportunities in your service department, you must focus on maintenance of your customers’ vehicles. This is a missed opportunity for many dealers who do not perform complete, thorough inspections of their customers’ vehicles and do not make recommendations for preventative maintenance based on time, mileage, local conditions, etc. The value of these missed profit opportunities might surprise you.

To begin with, let me ask you this question: What percentage of your customers take delivery of their new or used vehicle and then, once they get home, remove that maintenance manual so they can review and study their required and recommended maintenance services? I don’t know the exact answer but I’m pretty confident the answer is, not very many. I’m talking about the transmission services, coolant flushes, air filters, pollen filters (which very few customers know they need), alignments, tire rotations, and the list goes on, and on. Everyone knows when to change the engine oil, but how many do you really think know when to perform all of those other maintenance services?

Next question: Are all of your customers mechanically inclined and can they perform all maintenance services on their vehicles themselves? Most customers rely upon someone with knowledge of their vehicle to provide recommendations for the proper maintenance and service on their vehicle.

It’s kind of like going to the dentist; the dentist performs an inspection of your teeth on each and every visit and makes recommendations to you based on the time since your last visit and the condition of your teeth. You know that you have to brush after every meal and floss, but there are other things your teeth need that you may not be aware of.

You rely upon a professional to help you maintain healthy teeth. An automobile customer is no different. They rely upon a professional, your technician or your service advisor, to properly advise them on how to maintain a reliable and safe vehicle which, in the long run, provides a much more enjoyable driving experience. There’s nothing worse than going on a trip with the family and having a problem occur with your vehicle, right?

Okay, so let’s look at the profit potential regarding this process of inspecting every vehicle and making recommendations to your customers for additional maintenance. In working with dealers all over the country, I have found that a complete and thorough inspection will produce, on average, an additional 0.7 hour of labor per retail work order. Let’s use the following assumptions when calculating the profit opportunity in our model dealership/service facility:

•Retail labor rate of $85 per hour
•Retail labor profit margin of 75% (Techs are paid $21.25 per hour)
•Parts-to-labor sales ratio of 0.8-to-1 ($0.80 in parts sales = $1.00 in labor sales)
•Retail parts profit margin of 45%
•Average 500 retail work orders per month

By performing complete and thorough inspections of all 500 vehicles we find, on average, 0.7 additional hours to sell at $85 per hour equals $59.50 in labor sales. At a profit margin of 75 percent, this produces additional gross profit of $44.63. At a 0.8-to-1 ratio our parts sales would be $68 per hour with a profit margin of 45 percent, which produces additional gross profit of $30.60 per repair order. Add the two together, and our total additional gross profit equals $75.23 per work order. Multiply that by our 500 work orders and the result is an additional gross profit of $37,615 per month. That comes to $451,380 for the year, based on 500 work orders each month.

Now ask yourself this question: “How many additional vehicles would I need to sell throughout the year to produce another $451,380 in gross profit?” If your average gross profit per unit is $1,500, this equates to approximately 301 additional vehicles. Does that get your attention? The point is, you need to start looking at your service and parts departments as true profit centers that can not only stand on their own, but also actually generate enough profit to cover all of your dealership’s fixed expenses. That’s service absorption! This means you have less dependency on new and used vehicle sales to make a net profit, which becomes a huge benefit during a soft market, high interest rates, expensive fuel, bad weather and a whole lot of other ills.

In far too many dealerships, the service and parts departments are simply there to provide support for the sale and delivery of new and used vehicles. Their secondary role is to take care of all the warranty repairs, and last of all, if time permits, they will write a retail work order for cash business. I’ve actually been in a service department that told customers that if they didn’t buy their vehicle from the dealership, they were low priority.

If this philosophy makes sense to you, then welcome to the dark ages! As you can imagine, this dealer was losing money in his service and parts department in numbers that would take your breath away. Would you want to be a service advisor or service manager in that store? It’s worth noting that the turnover in those two positions was quite high.

Why would you want to operate any department in your dealership at a loss to support another department? I believe it makes a lot more sense to operate every department as a standalone enterprise that works with the other departments to maximize overall performance and profits. It’s called return on investment.

Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions

Business Development Centers Can Maximize Service Appointments

I recently reviewed some research findings from a Detroit 3 manufacturer that revealed a very disturbing statistic: “The average dealer has a drop rate of about 35% on incoming service calls.” This simply means the customer hangs up the phone without speaking to anyone. This is disturbing, particularly in light of the declining warranty and retail repair order counts we are experiencing in our industry today. As a dealer or general manager, would you allow 35 percent of your incoming sales calls to be dropped? What would happen to your service appointments if you could find a way to capture all of these lost calls?
Additionally, research shows that for every five incoming calls that are answered, one results in an appointment, one is calling on the status of their vehicle and three are calling for a price quote or availability. What would happen to your service appointments if you could convert just one of the three incoming calls for price and availability to an appointment?

How does this happen in so many dealerships across the country? It’s because most dealers send incoming service calls to their service advisors. Some dealers even have a direct phone line to the service advisors. Most of these calls are coming in during the morning hours, midday and late afternoon, which is exactly the same time the advisors are their busiest working with customers and technicians. These processes are not conducive to increasing appointments, increasing sales, improving CSI or building owner retention.

Here are a few situations to consider evaluating in your dealership:

•Your advisor is making a maintenance menu presentation to a customer and the phone rings. What do they do?
•Your advisor is on the phone with a customer and the phone rings. What do they do?
•Your advisor is reviewing a repair order with a technician or customer and the phone rings. What do they do?
•Do your advisors ever answer the phone, “Service, hold”?
•Does your receptionist ever complain about your advisors not answering their phone?
The correct answer to the first three is: never stop working with the customer in front of you to answer the phone. The answer to the last two is probably yes, which is exactly why 35 percent of the service calls are dropped. What can you do to change this?

One very effective way to correct this is to send all incoming service calls to a business development center (BDC). Properly trained BDC personnel can provide a multitude of services that will increase owner retention and CSI while enabling your advisors to become more productive, thereby increasing sales and shop productivity. Here are some examples:

•Answer all incoming calls eliminating the 35 percent dropped calls and increase appointments set.
•Convert one of the three customers who call for price and availability to an appointment.
•Call all lost service customers to invite them back for service
•Make CSI follow-up calls
•Contact all no-shows to reschedule their missed appointment
•Call customers for appointments to install special order parts
•Contact all customers with an appointment reminder
•Advise customers on recall campaigns
Now your advisors have the time available to focus on providing your customers the highest level of service they expect and deserve. Advisors tell me that the phone consumes more of their time than any other function they perform. With a BDC, you can greatly reduce the number of time-consuming incoming service calls going to your advisors, giving them the available time they need.

How much time do your advisors spend answering incoming service calls? Well, again the research shows that the average dealer will schedule one appointment for every five incoming service calls. Let’s assume your service department schedules 500 appointments per month (retail and warranty), or 24 per day. That equates to about 2,500 service phone calls per month or about 120 per day.

If you had two service advisors taking these calls, then each would handle approximately 60 service calls per day to schedule 12 appointments each. Assuming each call lasts for three minutes, each service advisor would spend three hours on the phone. With a 9-hour workday, that means your advisors are spending 33 percent of their day answering the phone. This does not include outgoing calls advising their customers on needed repairs or services, reviewing the repair order with their customer, getting authorization for extended service contract repairs or advising on completion times, all of which could easily add another three hours. Is a business development center starting to make sense?

If you don’t think you are quite ready for a BDC, then you might want to consider hiring appointment coordinators. Appointment coordinators will receive all incoming service calls and schedule service appointments. They can perform the exact same functions as the BDC would for the service department, except they only work for the service department. The benefits to the advisors and customers are still the same, and your sales and CSI will increase. Your increase in sales and CSI will far outweigh the costs of this position.

If you are of the opinion that you don’t need a BDC or appointment coordinators, then here is a simple exercise for you to complete as soon as you finish reading this magazine. Phone shop each of your advisors. Ask a friend, a relative or maybe someone in your office staff to do the phone shopping. Make a note of how many times the phone rings, whether the caller was put on hold at any time during the conversation, whether the advisor offered an appointment for a specific time for today or tomorrow, and if the advisor give his or her name and asked for the callers. Did the advisor exceed your expectations?

Don Reed
CEO, Fixed Ops Solutions
DealerPro Training Solutions