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Welcome to NCM's Up to Speed Blog

3 Ways the Service Drive Can Solve Your Pre-Owned Inventory Problem

Randy Fluharty
Written By: Randy Fluharty
Posted on February 21, 2017

How many times have you said, “I can’t find quality pre-owned vehicles and, when I do, I have to pay too much for them”? I’m sure it sounds familiar—we all know that gross starts from the moment we obtain a vehicle, either from trade, auction, wholesalers, rental companies, or any other means of purchase. Include various fees, and they reduce gross even more by the time we get the vehicle to our door.

After reviewing national dealership operational data, NCM has determined that, if done properly, 3-4% of your customer-pay repair orders should convert to either a new or used vehicle sale if you have a dedicated service drive procurement process.

Dealerships most adept at doing this have a dedicated salesperson for the service lane with a unique pay plan to incentivize them, but you must have enough service customer-pay volume; otherwise, I would recommend a different approach. For example, if your dealership does 30 customer-pay repair orders a day, you have, on average, the ability to generate roughly one vehicle a day from your service lane; that’s 20+ sales, easily enough to support a person with help from others when things get busy. Of those sales, trades are involved most of the time, and you will keep a very high percentage of those transactions because most vehicles in the service department tend to be fewer than five years old and have been maintained, which helps in reducing reconditioning costs while adding to the gross. Plus, we likely have the vehicle's history if we’ve already established a relationship with its owner; after all, they are in our service lane!

Your service department creates high-quality vehicles

In 2015, CarStory surveyed online pre-owned shoppers asking them to identify what things they wanted to know about a pre-owned vehicle. They reported 15 items; the top three were condition, accident history, and service history. When you acquire a vehicle off the service drive, you can easily attest to condition and service history, assuming the customer and vehicle have visited your service department regularly. When you consider the top three areas, the potential customer wants to know what are the “risk reducers.” They are already uneasy about potentially buying another person’s problem; however, vehicles maintained by a dealership are perceived as being of higher quality, as they have been repaired by technicians trained specifically for the brand and repairs have used parts designed specifically for that model while maintaining the highest engineering standards.

Identifying potential purchases during service appointments

A critical component of this approach is determining which customers are viable candidates; you are looking for owners in an equity position or near the end of their lease cycle. To do this, your service department or service BDC must have a robust daily appointment process that captures the information you need to determine if a customer is in equity, such as VIN and name. Here are my recommended three options for implementing a process at your dealership:

1. Use software

Look into the various software options and companies that drill into your service appointment function in your DMS and run the customer against your records to determine if the client is in an equity position, assuming you sold the vehicle. These tools will alert you if the customer is eligible for another vehicle based on equity and credit position with a relatively high level of certainty.

2. Review upcoming appointments

Another way to start—one that doesn’t require the same degree of investment—is to review tomorrow’s service appointments and identify vehicles that are between three and five years old. Then, have an F&I manager compare the customer’s information in your DMS to see if you sold the vehicle, and request that he or she evaluate its approximate equity or lease position. If you have an opportunity, determine a rough trade number for the customer and build a deal based on their last purchase or lease. Develop a script, and get started.

3. Evaluate on the service drive

A third option is to ask your service advisors to give you a heads up on expensive repair orders in the shop. Examine the vehicle and if you trade the car and keep it, give them the internal repair. If you wholesale it, pay them what the internal repair order would have paid them in commission since you probably sold a vehicle that you might not have sold anyway.

These are just three suggestions to get you started. Whatever method you choose, keep in mind the bottom line: Opportunities exist at your door every day, so why not take advantage of them?

Learn more about Randy Fluharty and how he and his NCM colleagues can help your dealership through 20 Groups and in-dealership consulting.

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