The decline in new car sales that began in 2008 had a predictable outcome: less late-model vehicles on the road and on the service drive.
The bad news: J.D. Power and Associates says there are 63 million vehicles on the road under five years old. This is the lowest number of late-model vehicles on the road in the last decade (see graph to the left). If your service department relies on warranty work and repair work to pay the bills, then you are in trouble. If your customer retention strategy revolves around vehicles still under the manufacturer’s warranty (in other words, when the warranty expires, the customer moves on), then you’re in deeper trouble. If you rely on strong service drive traffic (in other words, you see a decline in revenue when there’s a decline in cars on the drive) then you are in the deepest kind of trouble.
The good news: Forecasters at J.D. Power and Associates predict 2012 is the low point, and starting next year, late-model units in operation will begin a slow and steady rise. Who knows, it may take a decade to get anywhere near what it used to be. But, in my opinion, it doesn’t matter because the key to service success has nothing to do with the number of late-model units in operation; rather it has everything to do with your service advisor’s ability to sell preventive maintenance on the service drive. I have many dealership clients that have increased revenue and gross in the midst of declining service drive traffic. And let me hasten to add that I also know many dealerships that have seen their service drive traffic increase as a result of selling more maintenance services.
There is more good news: even though late-model units in operation have dropped, the overall number of cars on the road has stayed steady at around 250 million. Therefore, there has been a shift to an older mix of cars. That means there are roughly 185 million vehicles on the road that are over five years old! The older they are, the more preventive maintenance they need. Do you have a plan in place to capture this segment of the market? If not, go to http://dealer-communications.com/service/older-cars-higher-mileage-is-your-service-department-ready/ and search the archives for the article I wrote in the February 2012 edition of Dealer magazine, “Older cars & higher mileage: Is your service department ready?” Older cars will bring your service department more money.
Speaking of a plan, earlier this year Automotive News did a nice spread on fixed operations in a series of articles by Amy Wilson. They surveyed over 200 dealers to see what they were trying to do that would increase their customer-pay business.
Over half of the respondents said they were counting on digital promotions and on-the-drive technology. Specifically, 45% said they were expanding email and mobile phone promotions, while another 10% were planning to use tablet computers or some form of digital technology on the service drive.
The bad news: Digital promotions and technology will not increase the bottom line if the advisors aren’t selling service. If you think that technology will drive your processes, if you think that technology will manage, mentor, train, and coach your personnel, then you are sadly mistaken! Don’t get me wrong, I love technology and I’m all for integrating it into proven processes, but I agree with Jay Dyer (www.jaydyerassociates.com), who says “while technology can speed up processes and procedures, it is useless without good people, processes, and procedures in place.” Amen. Well said, Jay!
The good news: Promotions work and they will increase service drive traffic. The goal of the promotion is not to get “lost souls” back on the service drive…that’s just the first step. Forgive me for stating the simplicity of the obvious, but the goal of a promotion is money. That only happens when a good walk-around, multi-point inspection, and sales presentation occurs. It’s a two-step process: inspect the car and ask people to buy technician-recommended preventive maintenance.
Another question on the survey asked respondents where their focus was as they considered expanding services. Fifty percent said they were focused on expanding tire sales and 32% said they were adding a quick service operation.
The bad news: Selling tires for the sake of tire sales and quick service for the sake of servicing a car quickly are very low-profit ventures. Tire sales and quick service are not the end game; rather they are the means to the end. The end game is money. I recently visited a domestic dealership in the deep South. They had a robust, high-traffic, quick service operation. Customers were getting their oil changed in under an hour with free Wi-Fi and all the Starbucks coffee they could drink. The processes were being followed and everything was rocking along just fine. The problem was that shop efficiency was under 65%, they were logging less than 1.6 hours per RO, and gross profits were way down. Why? Because they weren’t selling any maintenance services! If the end game was “quick,” they were spot-on. If the goal was increased revenue, they were falling flat on their face.
The good news: Tire sales and quick service can greatly increase service traffic and start the process of customer retention. Having the car in your shop is the only way for the technician to get his eyes and hands on the car and thus go through the “discovery and recommendation” process. Proactive managers won’t let their personnel stop there. Those recommendations are then communicated to the customer by the advisor as he asks for the business. General sales managers know this as the “road to a sale”…it sells cars, it sells service.
Time out. I’ve talked a lot about money, money, money…and, after all, profit is the goal of any business. But what about the vehicle owners? Is this concept of selling service for your “gain” and their “loss?”
Absolutely not! Preventive maintenance is the best investment a vehicle owner can make. It’s always cheaper to maintain cars than to repair them, so if you want what’s best for your customers, you’ll always ask for the preventive maintenance sale. When you do, everyone wins.
My personal thanks to Automotive News and Amy Wilson, and to Chris Sutton and J.D. Power and Associates for letting me use their statistical information. See you next month.