As part of a fixed operations profit potential analysis we conduct for our dealers, we prepare a trend analysis for customer pay operations to track sales, gross profits, margins and RO counts. This data is then translated into line graphs so dealers can see at a glance where their retail service and parts operations are improving, remaining stagnant or declining, year to year. One of the critical performance indicators in this exercise is, of course, the RO count. The results are often very disturbing. In far too many dealerships, total customer pay RO count year-to-date, when compared to the previous year, is equal to or below last year’s numbers. In other words, their retail service traffic is stagnant or declining. Why?
To begin, many dealers and managers believe that if their retail traffic is holding steady year over year, they are doing a good job in “owner retention.” Oftentimes, the reality is, they are simply replacing the customers they are losing each month with the new customers they are gaining through new and used car sales. Consider the following scenario for a dealer selling 150 new and used per month and producing 1,000 retail ROs per month, on average, last year:
• 150 units sold per month last year produces 1,800 service customers for this year
– Assuming this dealer has a customer retention rate of 33 percent, the dealer has a net increase of 1,200 potential new customers for their service department. (100 new customers per month)
• Producing 1,000 retail ROs per month equals a total of 12,000 retail ROs for last year
– If this dealer retains their customers from last year (12,000), and capitalizes on potential new service customers from new and used car sales (1,200) the net increase in traffic this year should result in an increase of 100 new service customers per month
• This year’s traffic count should now be averaging 1,100 per month, right?
Unfortunately, in many stores they are still averaging about 1,000 retail ROs per month or less. Why? Because they are losing existing customers at about the same rate as they are adding new ones. Owner replacement. Do the math in your store and compare last year’s RO performance to this year’s RO performance. Is your traffic going up, going down or remaining stagnant?
If the answer is going down or stagnant then it is imperative you determine why. Let’s take a look at some of the conditions that may be causing your lack of retail customer growth:
1. Poor appointment process for incoming calls. Eighty percent of your ROs start with a phone call while only about 20 percent are from walk-ins and the internet. Has your team had any professional phone training lately on how to sell appointments?
2. Advisors are not training your customers on preventive maintenance. One-hundred percent of your warranty and retail customers should be trained on the manufacturer’s maintenance requirements and recommendations for both severe and normal driving conditions. A recent AAA survey shows that over 60 percent of customers are driving in severe conditions.
3. Advisors do not conduct an active delivery with the customer at their vehicle. Customers must be informed of the Three C’s for each service and repair made to build value in the cost of the RO. A thorough review of the features and benefits will go a long way toward building trust.
4. Advisors do not set the next appointment for each customer at time of delivery. You should be doing this based on time and mileage. Ever been to a dentist?
5. All “no shows” are not being called for a new appointment. People forget and/or get busy with other commitments but they still need the service or repair. Again, has your team had any professional phone training lately?
6. Your CRM strategy (or lack thereof) is not working. Why do dealers consistently spend 25 to 30 percent of their front-end gross in advertising to sell a car to a stranger, but won’t spend 10 percent of backend gross to retain a customer who already owns their product and will eventually buy another one?
7. The dealer or GM has a lack of appreciation and/or understanding of how to lead and build their fixed operations to work toward achieving 100-percent fixed absorption. If working toward achieving 100-percent fixed absorption is not on your radar, then the next recession might be your last.
There is nothing profound in what I’ve covered thus far and many of you reading this article might be thinking “Nothing new here!” Well, this might be surprising to you, but I agree. You’ve heard it before, so why are these seven processes not being followed? I believe the answers are quite simple: lack of commitment and lack of accountability.
Your commitment starts with defining the primary mission of a service department, which is: “To ensure that every customer leaves your dealership driving a safe and reliable vehicle.” Then you must carry out that mission by communicating effectively with every customer what is required to keep their vehicle in a safe and reliable condition.
This is easily accomplished through complete and thorough multi-point inspections and professionally prepared maintenance menus, along with advisors who communicate the benefits of following the technicians’ recommendations as well as those of the OEM. In other words, your advisors must advise. Once your advisors know how to effectively advise and train your customers, your sales will increase, your CSI will go up and you will start growing owner retention versus treading water with owner replacement.
With this commitment, now you must be willing to make this company policy and, as such, it is not “optional.” Policy is policy and should not be ignored by anyone. Those who do must be held accountable for their unfortunate decision to ignore the company policy.
Many of you have a difficult time holding your fixed operations team accountable for their performance, or lack thereof, in the same way you do for your sales team. For example, if you won’t tolerate a salesperson selling four cars a month then why would you tolerate an advisor selling one hour per RO? If your sales manager can only close 10 percent of the “ups” I’m guessing you hope he goes to work for your competitor across town after you fire him. So what happens to a service director who averages 60 percent one-item retail ROs month after month? Most likely, he isn’t going anywhere any time soon.
Remember this very simple premise when you’re trying to make a decision with your heart as opposed to your head regarding an underachieving employee: If an employee cannot perform at the level of a top performer, there are only two reasons for that 1) they don’t know how to or 2) they don’t want to. If they don’t know how to, we can cure that with professional training. If they just don’t want to, then wouldn’t you agree they have made the decision to “de-hire” themselves?
It’s time to get committed, start holding everyone accountable for their individual performance and put your energy into growing your customer retention instead of remaining satisfied with stagnant service sales.