Your Dealership’s Service Department Advantage
Your Dealership’s Service Department Advantage

Your Dealership’s Service Department Advantage

Larry Peranski
Written By: Larry Peranski
Posted on December 19, 2019

In today’s automotive landscape, it’s shocking how many dealerships don’t take advantage of the potential in their service department. All franchise dealerships want to improve service gross and net profit, particularly now as new vehicle sales have become stagnant and vehicle gross profit has declined. Your service department contribution, or lack of contribution, is probably under a microscope trying to determine how to generate more profit. Your service department can generate more gross profit easily and quickly.

Find the Advantage of Your Service Department

Take a good look at your market and break down the following:

  1. Who is your competition?

  2. What advantages do you have over them?

  3. How can you exploit these advantages?

For the vast majority of you, your competitors are independents and not franchise dealerships. Most vehicle repair work is performed at independent shops, leaving warranty, competitive services such as oil changes, and low hour maintenance operations to the franchise shops.

Most dealership service departments have two distinct advantages over independent service centers:

  1. Technician skill level

  2. Retail repair order volume (customer pay and express)

I find that most dealers have the greatest opportunity within the second bullet: retail repair order volume. This area is where most service departments have experienced little change over the past few years. What has gone unnoticed (and has had a significant impact), however, is a change within RO volume and a shift in the work mix.

High grossing retail repair work lost over the years to independent shops has been replaced by low grossing competitive work, creating a strain on the bottom line. This shift was, and is, hidden behind a “busy” shop and unchanged retail RO volume.

Take Advantage of Your Volume

If you could improve your Effective Labor Rate by $5, $10 or $20 or more on your current retail repair order volume, how much of a difference would that make to your bottom line? The long game of course is to adjust your work mix through increasing the percentage of repair work by improving service loyalty and retention (blog for another time). While working on changing your work mix, start making more money now with simple price increase strategies (as you have 100% control of pricing). Follow these steps to get started:

  1. Test the theory for 30 to 60 days.

    1. Determine your top 10 (by volume) services you sell and eliminate LOF’s, tire rotations, wheel balances and other “express” services from the list.

    2. What you may discover is that much of your top selling retail work is deeply discounted, since most of the services on your list are maintenance and competitive.

    3. Increase the retail prices of your top three volume services from your list. Track every sale on your test services, calculate your gross margin and effective labor rate on each, and compare to the same discounted services from your top 10 list.

    4. Track volume change on those services (Note - this is not a door rate change).

  2. Overcome Possible Challenges

    1. Your employees – you won’t need to convince customers that some service pricing has changed $10, $20, $50 or more as it will go unnoticed by consumers in your service drive. You may need to convince your service managers, advisors and other employees of the necessity and positive effect it will have.

    2. Most service managers and advisors have been convinced over time that your service pricing needs to be competitive within your market. May be true with express type services, not with higher skilled maintenance and repair services.

When you complete your sample test, you should notice your retail repair order count is not affected, customers haven’t left your business. If the result of these tests are positive to your bottom line, try expanding to the top 5 or 10 services, or more.

It is important to remember that you have the best trained, highly skilled technicians working for you. Most consumers understand that you get what you pay for and are willing to pay for quality and peace of mind. Become a true retail operation on the professional services you offer – you and your bottom line will appreciate it.
 

Want To Improve Your Service Department?

With all of the challenges facing the variable side of the business, it more important than ever for dealers to ensure their fixed operations are built on a solid (and profitable) foundation. NCM’s team of fixed operations experts have helped dealers from all over North America make the changes they needed to grow in their service, parts, and even collision centers. If you are looking to take your fixed operations to the next level, we have fixed operations training courses and fixed ops 20 Groups enrolling now. For some additional fixed ops reading from our team, please check out the articles below.

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