Most dealerships have slowly trended towards losing profits in their service and pre-owned departments for years, unfortunately. If this sounds like your dealership, it’s time to make a stand and address the reasons for your losses! Otherwise, your shop will one day become 100% dependent on warranty/recalls, express service, and internal referrals. The high labor gross per repair order customer has, and is, leaving you.
However, you can change this trend today!
In my last 10 years moderating 20 Groups, and my 20 years consulting in-store, this is how the typical dealership service department runs. The shop is busy, service appointments are high, work is being turned away or scheduled a week or two out, and tech hours and productivity are good. So, why is retail labor gross per retail repair order and department labor gross profit low? Remember, we have plenty of volume and “we are always busy!”
The key is one single word, RETAIL
When I talk about retail, I am referring to customer pay and express combined. This allows us to frame the conversation much differently, and really address some of the common issues that are costing you.
1. High Volume but Low Labor Gross
Many dealerships who participate in express programs have experienced retail service volume improvement, but not labor gross profit improvement. In many cases, express service has simply replaced lost customer pay volume at much lower labor gross per RO. The higher labor gross from express customers theoretically is earned from a thorough vehicle inspection that potentially results in a repair or maintenance need discovery. Then, the customer is referred to the main shop to address the discovered issue. In reality, that rarely happens! So, we can’t count on that aspect of the shop to drive high dollar opportunities.
2. High Volume Recalls and Warranty’s
The best months for department gross profit are almost always a result of high volume recalls or warranty business. In some cases, this can also be from internal repair business due to a high volume pre-owned or CPO operation, most likely at discounted labor rates.
How to Develop More Quality Opportunities
Many dealership service departments struggle to be profitable because they’ve lost their best opportunity for recurring service gross for years, while simultaneously contributing to the growth of independent service competitors. How? They no longer sell tires. Tire replacement occurs normally between 3 and 5 years, that’s when most of your customer pay gross opportunity leaves your dealership to be replaced by warranty and low gross competitive services.
So, how can tires help you add more service opportunities to your department? As service frequency continues to decline due to better vehicle design, synthetic oil promotion, and OEM recommendations, you need more reasons for your customers to return to your service department. Here are few stats to think about as well:
Approximately 80% of all vehicles on the road are out of factory warranty
Approximately 30% of dealership customer pay business are out of factory warranty. Leaving 70% of customer pay business to LOF’s, recommended maintenance, an occasional flush, or an occasional alignment and some filters.
Service Retention continues to be a huge issue, as most experts estimate that dealerships retain approximately 20% - 30% of their service customers after 5 years.
Approximately only 20% of all customer pay service is performed at dealerships.
70% of “loyal” or “very satisfied” service customers are likely to purchase another vehicle from that dealership. Are you focused on developing loyalty, retention, both or neither? Retention provides volume, loyalty provides gross profit, focus on both.
Recruiting and retaining skilled technicians is difficult, but it’s much easier if your shop has a high volume of customer pay labor. If LOF’s and Warranty are your future, recruiting and retaining skilled techs will only become more difficult.
At the end of the day, the key to getting more quality service opportunities is having reasons for older vehicles to come into your shop. The more frequently they arrive for smaller services, the more opportunities there are for you to identify issues that lead to additional gross. If your service department delivers excellent customer service and provides multiple reasons for customers to visit your service department, you will have more service opportunities come your way.
Do you have a question about your service department you would like answered? Leave us a comment down below!
For some additional reading on expanding service opportunities, check out: