The average dealership parts and service department brought in more annual revenue than the previous year, and yet took less money to the bank. According to NADA DATA 2011, the average dealership saw their year over year parts and labor sales grow by 5.2%, while net profits were down 2.9% (see graph).
The answer can be found by looking deeper into the NADA report. The statistics are broken down by type of transaction, for example: customer-pay, warranty, internal, body shop, sublet, parts counter, parts wholesale, etc. Every category was either up, or at least flat, except for one: customer-pay labor! Customer-pay labor sales were down by almost $800 million. Total fixed operations sales grew from $76.2 billion to $77.6 billion, so in terms of total sales, the $800 million drop in customer-pay revenue is fairly small; yet, in terms of net profit, the drop was significant!
In other words, the highly profitable category of customer-pay labor, (which was down) had to be offset by less profitable categories such as internal and sublet (which were way up.)
So how do you take more money to the bank? By increasing your customer-pay parts and service revenue. How do you do that? By selling preventive maintenance services.
The greatest way to impact total dealership net profitability is by selling customer-pay preventive maintenance. As Jeff Cowan says, “every car…every time.” Nothing impacts your bottom line faster than selling preventive maintenance.
Savvy dealers have their best and brightest sales personnel on the service drive. Service advisors are the most important sales people in the dealership. Customer-pay labor sales generate 70% gross profit (versus new-car sales, which generate less than 5% gross profit).
There is a revolutionary new sales process that is guaranteed to greatly boost your customer-pay revenue and thus increase your net profit…this process is called “asking for the sale!” Forgive me for being sarcastic, but it really comes down to simply educating the customer, offering the preventive maintenance solution, and asking them to buy.
Warranty and internal repair orders are an unreliable source of income, but customer-pay preventive maintenance is a life-time annuity stream of unlimited opportunity.
Another alarming statistic, this time from J.D. Power and Associates, shows that the average annual amount spent per vehicle by consumers on maintenance and repair is declining. In 2005, dealerships saw consumers spend $181 per vehicle; in 2011, that has dropped to $169 per vehicle.
Experts cite several reasons for the decline: older vehicles with higher mileage, aggressive competition from non-dealerships, the perception that dealers are more expensive, etc. In my opinion, the reason for this decline is failure to ask for the sale.
So how bad is this “failure to ask” situation? It has become an epidemic. According to the Motor Equipment and Manufacturers Association, the automotive industry left $64 billion on the table last year because service departments didn’t bother to educate their customers and say “could we go ahead and do that service for you today?”
My friends, that is a tragedy. But let me tell you a worse tragedy: knowing the facts and not doing anything about it. Isn’t it time to pull out all the stops and build a world-class service sales team? There are a wide variety of service advisor sales training programs available.
Everyone agrees that service selling skills are a critical part of overall fixed ops profitability. Many dealerships require their service advisors to undergo some type of training program. Sadly, however, few managers are willing to invest the time necessary to hold their techs and advisors accountable to consistently follow a service sales process. I want to encourage you to implement a training and accountability plan right away. Don’t put it off another minute. What have you got to lose? (Uh… did I mention $64 billion?)
With the new year upon us, go ahead and make your 2012 resolution now to pursue your piece of customer-pay parts and service pie. Over $64 billion is yours for the asking… go for it!