It might, but that doesn’t mean bigger is always better
A number of dealerships in the last 12 months have experienced severe decreases in their customer-paid work orders for multiple reasons that are not always easy to identify. But it is a fact of doing business that if the iron stops going out the front door, it soon impacts the amount coming in the back door.
We recently worked with a dealership that has seen its average new-vehicle sales drop from 35 per month to 15. Even if the vehicle sales turned around today, that drop will negatively impact the service department for at least the next three years. But this was only part of the dealer’s challenge. The factory had extended maintenance intervals from three to eight months. So, instead of the dealer seeing customers four times a year, it may now only see them twice.
Extended service intervals not only create a drop in the work order count but can also cause a concern with both branding and customer retention. The question is, when the manufacturers increase their service intervals do they calculate the financial impact on their own lost parts revenue and the decreased revenue to their franchised dealers?
This leads to another question, do extended service intervals and engine oil-life monitors increase the new vehicle sales share of market? It did not appear to work for General Motors which was on the leading edge with its engine oil-life monitors and extended service intervals, sometimes running close to 20,000 km.
Conflicting directions
To put the situation in perspective, consider this: Many of our service departments are challenged by extended service maintenance schedules, fewer customers, decreased hours per work order, lower parts-to-labour ratio, less warranty work and a drop in the effective labour rate.
Appointment lead times are typically down from seven-to-ten days to one-to-three days. Hours per work order are down from a typical 2.4 hours to 1.6 hours. To sell 70 hours per day, 44 customers are now required instead of 29 customers. That is a 52-percent increase in customers just to sell the same hours!
One of the numbers I like to crunch in the service department (which really gets the service manager bent out of shape) is utilization. That is, the total hours you produced last month, divided by the amount of working days, then divided again by the number of service bays. In the past I’ve seen stores running at 9.5 hours per bay, per day. Over the last few years, that number has decreased so that many dealerships are currently running around just five hours per day, per bay. Which makes it hard to pay the rent!
Hung up on size
Now for the big questions: with extended service intervals, fewer customers and electric vehicles fast approaching on the horizon, should we be building bigger or smaller new car dealerships? Could it be that because we are still a male- dominated industry that we appear to be hung up on size?
Isn’t small and efficient better? Or have some dealers just become real estate developers? Within a 30 minute drive from our office a number of dealerships have been replaced by new ones. Here is what I observed.
A new Mercedes store is big enough to be the factory corporate office. It makes one wonder how they intend to fill the service bays if they see their customers less than once a year. Then, there’s a store with a drive-through that could park 20 vehicles, a 15 bay workshop and four technicians. And they didn’t look very busy.
I visited an Acura store that was also huge – has anyone looked at their sales volume recently? They, too, had only four technicians working and very few customers that I could see.
However, I did visit two new stores with solid reputations that had both moved to larger facilities and both had busy service departments. Their reputation preceded them and their large customer base followed them, which shows us that a bigger facility can work.
Is there a successful formula?
The financial challenge is dealership service absorption. Our advice to service managers is, if you are running with a three to one bay/technician ratio and are paid off the bottom line, find out where the local food bank is before you take the job. Unless of course the factory is paying the rent, or the factory lets you multi-franchise your store.
When I was working as a new dealer franchise manager I had to produce a pro-forma statement that took into consideration units in operation and potential vehicle sales to justify how many bays we approved. I wonder what formula is being used currently, if any?
The new dealerships I visited all looked fabulous and I felt like a kid in a candy store. But I still have a tendency to think that smaller and more efficient stores with strong service absorption would let a dealer sleep better at night!
