It’s not a pretty picture…As part of the fixed operations profit potential analysis we conduct, we prepare trend analysis graphs for customer-pay operations to track sales, gross profits, margins and RO counts. RO counts are critical. The graphs typically show very disturbing results for far too many dealerships since the vast majority of the dealers we analyze have total customer pay RO counts about the same or lower than last year.
Why is Your Service Traffic Stagnant?
To begin with, many dealers and managers think that if their retail traffic is holding steady year over year, they’re doing a good job in “owner retention” when, in reality, they’re simply replacing the customers they’re losing each month with the new customers they’re selling new and used vehicles to each month. Consider the following scenario for a dealer selling 150 new and used vehicles per month and producing 1,000 retail ROs per month, on average, for the last year:
- 150 units sold per month last year produces 1,800 service customers for this year.
- Assuming this dealer has a repeat customer retention rate of 33%, the dealer has a net increase of 1,200 new customers into their service department.
- This dealer writing 1,000 CP ROs per month would have a total of 12,000 CP ROs for last year.
- If this dealer retains their customers from last year, then the net increase in traffic this year should be no less than 1,200 new customers for an increase of 100 per month.
- This year’s traffic count should now be averaging 1,100 per month, right?
Unfortunately, in many stores, this dealer is still averaging about 1,000 ROs per month or less. Why? Because they’re losing existing customers at about the same rate as they’re 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 or down or is it stagnant?
Why Are You Losing Established Customers?
If the answer is going down or stagnant, then it is imperative that you determine why. Let’s take a look at some of the possible conditions that may be causing your lack of retail customer growth:
- Poor appointment process for incoming calls. Eighty percent of your ROs start with a phone call, while only about 20% are from walk-ins and the internet. Have you had any phone training lately on how to sell appointments?
- 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. An AAA survey shows that over 60% of customers are driving in severe conditions.
- Advisors do not conduct an active delivery with the customer at their vehicle. The customer 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!
- Advisors do not set the next appointment for each customer at time of delivery. We do this based on time and mileage. Ever been to a dentist?
- 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, have you had any phone training lately?
- Your CRM strategy or lack thereof is not working. Why do dealers consistently spend 25 to 30% of their front-end gross in advertising to sell a car to a stranger but won’t spend 10% of back-end gross to RETAIN a customer who already owns their product and will eventually buy another one?
- 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% fixed absorption. If working toward achieving 100% fixed absorption is not on your radar, then the next recession might be your last!
Nothing new here, right? Well, newsflash – I agree!
So why are these seven processes not being followed? I believe the answers are quite simple: lack of commitment and lack of accountability.
Commit to 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.”
In addition, you must ensure that you communicate 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 an advisor who can 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 properly advise, your sales will increase, your CSI will go up and you’ll start growing owner retention versus treading water with owner replacement!
It’s Not Optional!
Once you get this commitment in place, you must now be willing to make this your company policy. And as such, it is not “optional.” Policy is policy and should not be ignored by anyone. Those who do ignore it must be held accountable for this unfortunate decision. For some strange reason, many of you reading this have a difficult time with holding your fixed operations team accountable for their performance or lack thereof in the same way you do for your sales team.
Example: If you won’t tolerate a salesperson selling four cars a month, then why would you tolerate an advisor selling an hour per RO? If your sales manager can only close 10% of the “UPS,” I’m guessing you hope he goes to work for your competitor across town after you fire him! Okay, so how about a service director who averages 60% one-item ROs per 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 brain 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. But if they just don’t want to, then wouldn’t you agree they have made the decision to “de-hire” themselves?
It’s time for you to get committed and start holding everyone accountable for their individual performance to get on track for making this your best-ever year in fixed operations.