Over the past 18 years, our fixed operations team has visited more than 1,500 dealerships across the U.S. and Canada to evaluate their performance and profitability in their service and parts operations. The top issues that we consistently experience, year after year, are the strict accountability standards for the sales operations and the lack thereof for the service and parts operations.
I have found that far too many dealers and managers have a great divide within their dealerships. I like to call this divide the “Demarcation Line.” It divides the variable operations (new, used, F&I, special finance, internet sales) from the fixed operations (service, express lane, parts, collision center). When some of these dealers and general managers cross over the Demarcation Line from the variable operations to fixed operations, the words “selling” and “accountability” take on a whole new meaning.
For example, when I ask a dealer, “What would you do with a salesperson who only sells five cars a month?” the most common response is, “get rid of them and replace them with someone who can sell.” Conversely, when I ask, “What would you do with a service advisor who is only selling 1.0 HPRO?” far too often the response is “He’s a good guy, everybody likes him and I don’t want him to oversell our customers.”
By this logic, the dealer would fire a salesperson for underselling and fire a service advisor for overselling? I am forever amazed at how many times I’ve heard this from, not only dealers and general managers, but also from service and parts managers.
Dealers tell me they don’t want to oversell their service customers yet they cross over the Demarcation Line to the variable side and tell me they expect their sales team to maximize F&I revenue PRU with 100-percent turnover from the salespeople, 100-percent F&I menu presentations with 100-percent finance presentations. They expect a strong closing ratio of 25 to 30 percent on the sales floor with above-average gross profits PRU, 100-percent turnover to a sales manager by the salesperson, minimal wholesale losses from used cars and a 45-day turn on their new and used inventory. The managers responsible for achieving these sales benchmarks are usually supported to the max with healthy advertising budgets, professional training programs and full accountability for their end results each and every day. Underachievers are not tolerated in the sales operations — period.
These same dealers cross over the Demarcation Line to the backend of their dealerships and they tolerate far too many underachievers who are losing thousands of dollars in additional gross profits with zero walk-around presentations by advisors, zero service menu presentations by advisors, zero turnover of declined repairs to a manager, a 10-percent closing ratio or less by advisors, 60-percent one-item ROs (oil change), grossing below 70 percent on retail labor sales and below 35 percent on retail parts sales, with over $50,000 in obsolete parts inventory supported by a minimal advertising budget, no professional training programs for advisors or managers (don’t want to spend the money) and minimal accountability for performance — and they’re worried about overselling their customers?
Why would any dealer tolerate this scenario? Why would any dealer think this is a smart way to run a dealership? Why would any dealer want a Demarcation Line in their dealership? Why would any dealer think performance-based pay plans are a good policy for the variable operations but a bad one for fixed operations? If a 100-percent menu presentation is the right process for the F&I department, then why is it not the right process for the service department?
In all my years working with dealers of all sizes, I have yet to find a single dealer who is overselling their service, parts and collision center customers. Of course, we should never sell a customer any product, service, part or repair that their vehicle does not need. That, however, is not what I’m talking about here. I’m talking about the advisor not selling the customer what their vehicle does need. I’m talking about selling the customer on the benefits of preventive maintenance and following the manufacturers’ basic requirements and recommendations, as well as their technician’s additional service requests, to keep their vehicle in a safe and reliable condition.
We recently did a study based on a dealer averaging 500 customer pay ROs per month and the advisors made a menu presentation to 70 percent of the customers coming in the door. Here are the results:
• Menu Penetrations @ 70 percent
• Manufacturer Minimum Services Sold @ 30 percent
• Additional Service Sold @ 0 percent
• Increase in HPRO @ .2
• Monthly Gross Profit Increase @ $12,268
• Annual Gross Profit Increase @ $147,227
Obviously, the closing ratios above are nowhere near a good job of selling, but .2 HPRO produces a lot of gross profit with a minimal effort by the advisor. Imagine the results if the advisors were properly trained how to actually advise their customers.
Will a Properly Trained Employee Outperform an Untrained One?
Compare the following processes and policies in your dealership to determine if you have a Demarcation Line in place for sales and service:
• Ongoing training program
• Ongoing advertising campaigns
• Daily performance monitoring
• Professionally designed menus
• BDC support
• Performance-based pay plans
• Multi-point inspections
• Accountability for individual performance
• Accountability for departmental performance
• Do not tolerate underachievers
• Employee buy-in is not optional
That last point is important and needs more clarification because it is rampant in service operations but not tolerated in sales. We recently evaluated a grossly under-performing dealership to offer a training program for their service team. The service director was totally committed to our training proposal and very excited to get started. The dealer said: “Hold on here, we will have to get the permission of our service advisors before we implement any new processes or training. We need everyone’s buy-in before we start doing anything different.”
Here’s a dealer averaging 1.0 HPRO with a 64-percent CP labor margin, a 34-percent CP parts margin and 61 percent one-item repair orders, who lost over $350,000 in his service operations last year with a CSI score below average. Why would any good employee not buy-in to stop losing money and start making a profit for their dealer while providing a higher level of service for their customers?
Does any dealer require a salesperson’s buy-in to demonstrate a vehicle with a customer? Do you need your F&I producer’s buy-in to present a menu? Do you need a sales manager’s buy-in to desk a car deal for your salespeople? When you have a process or a policy, it is not optional for your employees to buy in — it’s their responsibility to follow the process according to company policy.
NADA Operating Guides for 2017 show us that 49 percent of an average dealer’s gross profit is generated by their fixed operations. Imagine how much greater that number would be if the average dealer eradicated that Demarcation Line. It all starts with training.