Annual new car sales have risen steadily since the economic collapse of 2009 when a mere 10.3 million cars were sold. In fact, 2013 is on track to see sales somewhere north of 15 million.
While this is wonderful news, these numbers fall way short of sales the previous decade—especially 2000 and 2001 when units sold were 17.4 million and 17.2 million respectively.
According to Lang Marketing, there will be 25 million fewer cars sold between 2008 and 2016 than there were between 1999 and 2006.
Many economists and prognosticators are saying this overall decline in new car sales will have a negative impact on parts and service profitability. I disagree. Granted, if your shop is making the majority of its money from warranty and internal ROs, then I can see where it’s going to be a long dry spell for you.
But if you are wisely pursuing the unlimited opportunity of customer-pay preventive maintenance services, then not only will you avoid a decline in revenue, rather you will experience dynamic growth!
Your opportunity for fixed ops growth is even greater because there are roughly 50 million more vehicles on the road than there were 10 years ago. It seems ironic that we now have 250 million cars on the road, despite the new car sales decline. The reason is because Americans are keeping their cars longer, hence more cars are sold annually than are scrapped, resulting in a net increase each year.
Let’s talk about money—lost money and opportunity money. This is the first article I’ve written where there are actually more graphics than text, but I felt it was important for you to see the data, not just read about it.
With 25 million fewer cars being sold (over an eight-year period from 2008-2016) at an average sales price of $30,659, the total revenue lost is $766 billion. Since the average gross on new cars is 4.5%, the total gross profit lost is $34 billion—that’s the bad news (see New Car Loss graphic).
The Motor Equipment Manufacturers Association says service centers left $67 billion of unperformed maintenance on the table last year. The reason consumers didn’t do the work is because the service center didn’t ask. With $67 billion of service work left unperformed annually over the same eight-year period, that means shops will leave $536 billion of revenue on the table. The service department generally grosses 70% while parts grosses 40%…the average for the combined departments is 55%.
Fifty-five percent of $536 billion is $295 billion of gross profit that is yours for the taking—if your advisors will just ask the customers to buy! (See Fixed Ops Opportunity graphic). What a wonderful opportunity—that’s the good news.
Action Point: Be sure your service advisors are properly equipped to sell service— to ask for the order. Make sure they have the menus, sales aids, and multi-point inspection forms to show the customer why the service needs to be done. Get them the product training they need to sell with confidence. And most importantly, hold them accountable to produce results; after all, that’s why you put them on the drive.
Will you be bummed out over the new car losses or aggressively pursue the fixed ops preventive maintenance opportunities?
“Charlie Polston is an Automotive Customer Retention and Profitability Consultant with BG Products, Inc. Charlie has been with BG’s Fixed Operations Division for over 31 years. He has trained over 5,000 dealers, managers, and technicians – and has been a frequent workshop leader at NADA’s annual convention.”