Dealers Earn Record Profits in 2018 — Fake News or the Real Deal? - AutoSuccessOnline

Dealers Earn Record Profits in 2018 — Fake News or the Real Deal?

Let’s make 2019 a record year for profits in your dealership. The opportunity is in your service department right now as you’re reading this blog. Now go out there with your new attitude and make some money! You deserve it!

“Do you like that headline? Are you going to have record profits in 2018? If your answer is “No” then here’s how to make 2019 your best ever. Do you believe that you can increase your new vehicle sales or used vehicle sales by 40 percent? Or, gross profit per retail unit by 40 percent? Maybe you are strong in F&I and believe you can increase your F&I gross by 40 percent in 2019 … well, do you?”— Don Reed, CEO, DealerPRO Training

Answering “Probably not” won’t get you there, so how can you have “record profits” in 2019 if the front end of your store does not have a record year? The answer lies in the backbone (fixed ops) of your store.

  • Can your service department increase its customer pay labor and parts sales by 40 percent? Yes
  • Can your service department increase its customer pay labor and parts gross profit by 40 percent? Yes

How do you do that? You start by doing things differently and by doing different things. This means, of course, that things have to change.

Change Your Attitude To Win BIG
You must believe in the concept that 100-percent service absorption will put you on the road to having a record year. You then must transfer this attitude to your entire management team. Yes, I said entire management team including those folks in the front end.

You see, 100-percent service absorption benefits everyone in the dealership and will enable you to become more competitive in your market. Competitive not only with the aftermarket service business, but also with the other new and used car dealers’ sales departments. Now let’s focus on this 40-percent increase in customer pay labor and parts gross that I’ve referred to.

You Can Be Better Than Average
If you are an average dealer, you are currently selling about 1.5 hours per customer pay repair order. If you trained your service writers how to effectively communicate with every customer their vehicle’s service requirement and needs on every visit to your service department then you will see the transformation from service writers to service advisors. These new service advisors will add on average about .6 of an hour per customer pay repair order. This equates to a 40-percent increase (.6 divided by 1.5) in hours per RO, which results in a 40-percent increase in labor sales and gross profit.

As an average dealer you will also experience about an 80 percent parts sales to labor sales, so now your parts sales will increase by about 40 percent as well. Based on an average labor rate of $75 per hour with a labor margin of 75 percent and a parts margin of 45 percent, your new service advisors are now producing additional gross profits of about $25,000 on every 500 customer pay repair orders every month.

A year of Winning
This increased HPRO activity annualizes to about $300,000 per year on these 500 ROs. On 750 ROs it jumps to $450,000 and at 1,000 ROs per month it soars to $600,000 for the year.

Let’s convert this gross profit into front-end language for comparison purposes. NADA says that the average gross profit per retail unit is about $1,500 so let’s divide that number into our potential for gross profit improvement as outlined above:

  • .5 HPRO Improvement on 500 ROs = $300,000 = 200 New Units
  • .5 HPRO Improvement on 750 ROs = $450,000 = 300 New Units
  • .5 HPRO Improvement on 1,000 ROs = $600,000 = 400 New Units

Would it be worth your while to train your salespeople to sell an additional 200 new units per year? I certainly hope so! Would it then make sense to train your writers how to become advisors?

See What You Can Do
At the end of the year, take your December 2018 financial statement and do the math for your store. Of course, if you are below average then the opportunity for profit improvement is even greater.

If you or your management team still have not bought in to what I’m telling you then here is some homework for your service director/manager. Get your hands on 50 used vehicle reconditioning internal repair orders. Total up all of the labor sales on the 50 repair orders and then divide that number by 50 to determine the average labor dollar sales per repair order. Next, divide the average labor dollar sales per repair order by your internal effective labor rate and the answer is your average hours per RO.

The Importance of Advising
Now I’m guessing you came up with 2.0 hours per RO or higher. I can tell you that it is not uncommon to get 3.0 hours per RO on internal reconditioning repair orders. Why is it that your writers are averaging 1.5 HPRO on customer pay ROs while averaging 2.0 to 3.0 on internal reconditioning ROs? The answer is quite simple: Your writers advise your used car manager on all of the vehicle’s needs and simply write what the retail customer asks for. Does this make any sense to you?

Train your writers to advise every customer like they were your used car manager and stop writing one-item repair orders that read: “Lube, Oil & Filter.”

Let’s make 2019 a record year for profits in your dealership. The opportunity is in your service department right now as you’re reading this blog. Now go out there with your new attitude and make some money! You deserve it!

“The greatest revolution of our generation is the discovery that human beings, by changing the inner attitudes of their minds, can change the outer aspects of their lives.” — William James

You May Also Like

Matco Tools Launches New Diagnostic Scan Tool

The tool is designed to perform wireless diagnostics, including read/clear trouble codes, view/graph and record the PID, bi-directional test, reset functionality and more.

Matco Tools has announced the launch of its newest diagnostic scan tool — the Maximus Plus. Designed with automotive technicians in mind, the Maximus Plus is the ultimate diagnostic scan tool that provides complete coverage flexibility, OE-level functionality and the power of Android at your fingertips.

With the Maximus Plus, users can tailor their coverage according to their specific requirements and budget, thereby eliminating unnecessary expenses and investing only in what is necessary for their diagnostic needs. The tool is designed to perform wireless diagnostics, including read/clear trouble codes, view/graph and record the PID, bi-directional test, reset functionality and more.

Hyundai Adds SiriusXM to Service Customer Experience

The program enables Hyundai’s service centers to reward eligible customers with a complimentary three-month SiriusXM subscription during their service visit.

Hunter Expands Wheelbase for Popular Scissor Lifts

The RX14KL lift gains an additional 13 inches, while the RX16KL picks up an additional 17 inches.

PRT Launches 32 New Products on Complete Strut Assemblies

The new items represent more than 10 million vehicles in new coverage, and come to expand the PRT brand portfolio in the North American aftermarket.

Gaither Showcases New Automotive Tools at SEMA 2023

Gaither Tool is debuting a jump starter, off-road kit, jack and more at this year’s SEMA Show.

Other Posts

Redefining Sales in the Modern Era: Trust, Information and Competitive Edge

When salespeople are no longer just transactional facilitators, the sales process becomes more of an informative dialogue rather than a one-sided pitch.

Velocity Automotive
Hunter to Preview New ADAS Equipment at SEMA

Ultimate ADAS combines Hunter’s alignment technology with an efficient and easy-to-use guided target placement system for around-the-vehicle coverage.

Easily Restore Catalytic Converter Performance

Rislone Cat Complete clears P0420 diagnostic codes and improves catalytic converter efficiency.

Sinclair CC Recognizes Reynolds and Reynolds for Support of Auto Tech Students

Administered through the Sinclair Foundation, the Reynolds and Reynolds Automotive Technology Scholarship is designed to support up to 50 Sinclair Community College students annually.