How to Turn Record Sales Into Record Profits

“Good news! It looks like we could be on track for another 17 million-plus new vehicle sales year. This would be the fourth-straight 17 million plus year! WOW! But average Dealer Profitability remains flat at about 2.5 percent of sales. Why?”

— Don Reed, CEO, DealerPRO Training

Fixed operations accounts for roughly half of the average dealer’s gross profits, so even if you’re selling more new vehicles, if you’re not increasing your service penetration, your profits will flat line. If you are a dealer who fits into this category then you have to ask yourself the following:

Are Customer Pay and Warranty RO counts increasing year over year?
Are Service and Parts Sales increasing to record levels?
Are you retaining and gaining more customers?

From a purely logical perspective, let’s compare our new vehicle sales of 10-11 million units back in 2008 to 17.5 million in 2016 and somewhere close to that number in 2017. Looks like about a 70-percent increase in sales volume, right?

How does that compare to your increase in service traffic? Shouldn’t your Customer Pay and Warranty traffic have increased proportionately? As a former dealer, I realize a lot of those extra 7 million new vehicle sales came from your existing customers trading in their old cars, so let’s say you’re holding about a 40-percent retention rate, which accounts for about 3 million vehicle sales.

That still leaves about 4 million new customers who should be driving up your service traffic. These 4 million customers account for around a 40-percent increase in service opportunities over 2008. Is your service traffic up 40 percent or more?

Additionally, some of you may recall that in 2008-2009, the auto industry lost somewhere in the range of 3,000-plus new car dealerships! Not that many years ago we had over 22,000 new car dealerships and today we stand in the 17,000 range, so we have lost about 25 percent of our dealerships and we’ve experienced all-time record highs in new vehicle sales volume. Are you experiencing all-time record highs in your service department traffic?

In working with more than 1,000 new car dealers in analyzing, evaluating and training their fixed operations teams, I can honestly tell you we have not seen a single dealer achieve a 40-percent increase in their service traffic. Not one! Even after 10 years!

What we do find is stagnation, which means year over year customer pay RO counts remain at about the same level in 2017 as they were in 2016. Sadly, far too many dealers are even losing money in their service departments. At a recent 20 Group fixed operations meeting, only three out of 20 dealers present were showing a net profit in their service departments! Amazing!

Everyone reading this article has the ability to improve your service operations IF you really want to! As a famous golfer named Bobby Jones once said, “If you fail to get the proper kind of instruction, no matter how much you practice, you’re going to get better at making yourself worse.”

It All Starts With Training
Think about this question: “Will a professionally trained employee outperform an employee with no training?” Of course they will! So who needs to be trained to achieve record results in fixed operations?

Owner
General Manager
Service & Parts Directors
Service & Parts Managers
Parts Counter Personnel
Service Advisors
Technicians
BDC/Appointment Coordinators
Everyone working with the service customer.

What is the value of training? It will provide you with a game plan for growth that will increase your retail parts and labor sales with maximum technician productivity (120 percent), resulting in increased Service Absorption and higher Net Profits. But before you start training you must first identify your opportunities for improvement.

Here is an easy-to-use checklist:

Key Performance Guides

Total Customers per Day per Advisor 12 to 15
Technician Productivity 120%
Gross Profit per Technician (P&L) $17,500
CP Labor Profit Margin 75%
CP Parts Margin 45%
# of Technicians per Advisor 4
Hours per CP Repair Order 2.5 Main Shop, 1.0 Q-Lube
Policy Adjustment as % of Service Gross 2%
Service Operating Net as % of Gross 20%
Parts Operating Net as % of Gross 30%
Service Absorption 100%

Next, analyze 100 Customer Pay ROs with an equal amount for each advisor and measure the following:

# with Shop Supplies charged
# of One-Item ROs
# 0-50,000 miles
# 50,001–100,000 miles
# 100,000+ miles
# of Multi-Point Inspections

Once you’ve completed this exercise then do the exact same analysis with your used car reconditioning ROs. If you see where this is going then you’re already laughing out loud!

OK, so once you have identified your opportunities for improvement, you can now prioritize what you need to train on in their order of importance and ease of implementation, such as:

Adjust Parts Pricing Matrix To Improve Margin
Adjust Labor Pricing Guide To Improve Margin
Eliminate Unauthorized Discounting By Advisors
Increase Technician Productivity
Increase Sales Per Repair Order
Increase # of Service Appointments

Now that you have identified your opportunities for improvement and have prioritized their order of importance, you can then initiate your training plan. Any Training Plan must start with the entire management team not the Advisors and Technicians. For example:

Implement Daily Performance Tracking for Techs & Advisors
(Labor & Parts Sales-Gross, HPRO, Margins, Productivity)
Managers must conduct Daily Team Meetings with Action Plan
(Appt Schedule-Today’s Variables-Current Status vs. Goals)
Managers must learn to periodically ask the question…

The question I’m referring to is this: “As your Manager, if there was just one thing I could do for you to make your job more enjoyable and more productive, what would it be?” This is a great question for all employees to hear but especially for Technicians and Advisors. I think you will be surprised at some of the answers you hear!

All of the above, of course, must be accompanied by some realistic goals that the entire team must focus on daily.

Here are the goals set by one of our Chevrolet dealers in the Midwest:

Increase CP Labor Margin from 70% to 75% — Achieved 74.3%
Increase CP Parts Margin from 40% to 45% — Achieved 43.4%
Raise HPRO by .3 — Achieved + .5 HPRO
Increase CP Appointments by 20% — Achieved 27.1%

Total Customer Pay Gross Profit Increase of $948,647 for his first year of his training plan!

Start building your plan now. Get committed to your plan. Hold your people accountable for following your plan. Get ready for change but, most importantly, remember, you are not running a democracy!

As John Newberg said: “People can be divided into three groups: