When it comes to average hours per customer-pay work under 1.5 hours, those hours in question can be impacted by a number of factors, such as type of franchise or local demographics. But most important of all, hours are directly controlled by your staff.

You might not be convinced of the importance of this measurement on the business profit picture, so let’s start with some basic number crunching.

Increasing hours per work order beats increasing door rates every time.

Take a store with an average of 700 customer-paid work orders per month: 700 multiplied by an average of 1.3 hours per order equals 910 hours. Multiply that by an effective door rate of $75, and you get $68,250.

So let’s move the effective door rate up $3. Now, we know we have an effective rate of $78 multiplied by 901 hours, which comes to $70,980.

We gained $2,730, which might seem good, but staff will probably want a pay increase and you risk losing some of your customers because of pricing.

Now, let’s take a look at what happens when we increase the hours per work order by 0.4 hours: 700 customer-paid worker orders multiplied by 1.7 hours equals 1,190 hours. Multiplying that by the old effective rate of $75 gets us $89,250 — an increase of $21,000, plus parts sales.

In some of the stores, this would create the same bottom line revenue as selling another 180 new vehicles per year!

OLDER VEHICLES, GREAT VEHICLES
Are you convinced? Great! So where do you begin when you want to increase hours per work order? Answer: By professionally managing your customer base.

If you are losing 80 per cent of your customers to the competition after three years, it will be tough to maintain good average labour sales because the vehicles in your customer base will then be mostly newer, low-mileage vehicles — ones that requires less maintenance and often zero repair work.

The tendency in the industry is to spend a whole lot of money in bringing new customers on board, but very little in keeping our existing customers coming back.

So when one of the few customers you still have left drives an older higher-mileage vehicle and phones in for an appointment, how is the staff trained on telephone skills appropriate for that customer?

Do they look up the customer’s vehicle history while the customer is still on the phone to turn an oil change into a maintenance service?

Are they spreading the service appointments so not all the customers have to come in between 7:30 a.m. and 9:00 a.m. when it’s tough to spend enough time with the customer to do a thorough write-up and ask for the incremental business?

TEAM APPROACH
At times, the industry hires technical people as service advisors rather than people-oriented sales staff, who love dealing with customers and are not afraid to ask for the business.

Do your advisors walk around the vehicle and pop open the hood at the time of the write up? That alone can create substantial increases in sales per order.

Are estimate and check sheets attached to every work order and completed in full by the technicians?

Increasing hours per work order is a team effort. Sometimes, if there are 10 technicians in the shop, probably only two will do a good job on inspecting the vehicle, writing up a good estimate sheet and asking for the business.

The entire service staff has to be considered as salespeople — and yes, that includes technicians. It’s the only way to get top results.

Posting staff performance numbers daily against a goal creates a huge positive impact on the bottom line, and thus creates accountability.

Increasing average sales per work order should not mean doing a professional job of recommending needed maintenance and repairs. We owe it to the customer not to leave legitimate money on the table just because we weren’t professional enough to ask for it.

Some days, we leave more work on the table than we actually do, which is probably why the independents are still in business.

If you really want to see how much business you could be missing, start by completing an opportunity analysis. It takes some time to complete, but it’s worth it.

The post Increasing hours versus rates appeared first on Canadian Auto Dealer.

Policy is work we perform and it doesn’t pay. Some people call it comebacks, or repeat repairs. In the service department, we tend to avoid using the word comeback. The techs don’t like that term because it implies they alone were responsible for the customer having to return to the store.

Whatever you call it, this type of work can cost a service department a lot more than the dollars represented in the same named account on the financial statement. It also costs us lost customers, a poor reputation and it can erode our customer base, not to mention damage our CSI score.

To get a handle on what’s going on, you have to start by asking a few basic questions. Do you measure effectively why the customer had to return to the dealership to fix the same problem? Do you make the staff accountable for quality work? Do you take the time to find out why the problems are happening and implement effective controls? At the end of the day, do you process the repeat repair at the full door rate, so you can measure the real cost of not fixing it right the first time?

As a wise man once said, “There is never enough time to do the job properly, but always enough time to do it again.”

MULTIPLE REASONS
To be fair, there are a number of factors that can trigger a repeat repair other than poor quality work by the technician. Here are just a few of the common ones:

• Poor write up, resulting in insufficient information being recorded on the work order;
• An intermittent problem not evident while working on the vehicle;
• The new part installed failed, which in the customer’s eyes was still a repeat repair.

When all else fails, blame the customer, sometimes referred to as the nut behind the wheel. That attitude of course carries a certain risk. Let’s face facts: Most customers don’t come back just to make your day bad. That would be like going back to the dentist and complaining that you still have toothache if in fact everything was fine.

Here is a basic process that seems to work well whenever a customer has returned for what we like to refer to as a “priority visit.”

No blame has been attached at this point. In fact, surprise, panic and blame will do little to improve customer satisfaction and will do even less to identify the customer’s concern.

• A priority return sheet should be filled out by the service advisor;
• When possible, the vehicle should be given back to the same technician, the exception
  being if they should have not been given the job the first time due to a lack of skill level;
• If the complaint is not evident, then the customer should be contacted for more information;
• If the complaint can still not be found, the customer should be contacted again and requested to come on a test drive with one of the staff;
• The first time a comeback incident happens, it can be handled by a service advisor;
• If the customer comes back more than once, the service manager should become involved directly. It is better being proactive than waiting until the customer demands to see them;
• Under no circumstances should NFF (no fault found) ever be recorded on any work order at any time. “Unable to duplicate at this time” is a little more palatable to the customer and maybe the court.
• If the problem only happens when the vehicle is cold or first thing in the morning, then ask the customer to leave the vehicle overnight;
• Every priority return sheet should be reviewed by management or a CSI team monthly to see where the problems are being generated;
• All repeat repairs should be charged at the full door rate and not at cost.

ACCOUNTABILITY MATTERS
There is an old saying that goes, “Inspect what you expect.” If you expect to deliver a high degree of quality work to your customer, then that saying should become a culture of the store. If you find out that 80 per cent of customer returns are coming from 20 per cent of your technicians, you obviously have a technician problem.

Over the years, we found this technique works: Sit down, individually, with the technicians in question. Say something such as, “Joe, last month out of 22 customers who had to return for what we determined was poor quality work, nine were related directly to you. I know you must be as concerned about this as we are, so how would you suggest we fix the problem?”

It’s amazing how the quality of service improves when staff know that someone is keeping score.

Therefore, if we can’t fix the vehicle right the first time, it makes no sense to write up the priority repair as a waiting customer.

The post Repeat repairs appeared first on Canadian Auto Dealer.

Protecting the environment has become a major issue over the last several years and so have the related fines for not complying. Recovering the cost of shop supplies from a customer is an interesting subject that appears to have a huge variance across different stores. It’s also one of those accounts that’s often completely ignored.

Do you remember when we used to get paid good money for used engine oil, dead batteries and old tires? Don’t ask how much of that went into the dealer’s pocket and how much just disappeared. We can remember when used oil filters went out with the rest of the garbage and, at times, used oil and coolant were poured down the drain. We also blew brake asbestos dust around the shop, mainly because health and safety issues simply didn’t exist.

Not terribly responsible, but, at the time we just didn’t know any better or perhaps just didn’t care.

EXPENSIVE PROPOSITION
Today of course, we have stringent health and safety laws, but disposing of these items has created a significant expense to running the service department. Fairly recovering these expenses from the customer is perfectly reasonable, providing this account has not been turned into a profit centre.

Shop supplies are one of those boring accounts often overlooked on the financial statement and at times written off as a cost of doing business. But if we’re smart, we should keep a constant check on this account every month because it can devour chunks of your service department’s bottom line. This account can also become a dumping ground for items that technically should not be there. For example, we’ve even seen parts buried in this account from shop comebacks rather than going in the policy account.

One of the best and fairest ways we’ve discovered for recovering supplies is by kit numbers — for example on a brake job, create a kit number in the computer such as BRK007 which might include items like brake cleaner and grease. If the customer should ask what’s in the kit, make sure the service advisors have a printed list to show the customer what they are paying for.

Our goal is to keep this account at zero, or at least under two per cent of gross profit.

Here are some of the things you are likely to find there: tools from the factory; small tools and air-lines not worth amortizing; technicians’ overalls; brake cleaner; silicone; and a lot of other technician consumables. Some of these items have a tendency to grow legs and walk, adding to the monthly expense. Occasionally when walking around the shop we see more supplies on or under the benches than there are in the parts department.

KEEP YOUR TECHS ACCOUNTABLE
Technicians should be made accountable for the supplies they use — it is amazing how many technicians think that they own them. Once on a Saturday morning we took a cart around the shop and picked up all the surplus supplies from the benches. The reaction on Monday morning was, “who took our supplies?” As an example, if a technician wants a can of brake cleaner, they should be made to hand in an empty can first. Each transaction should be recorded under the technician’s name, either by opening a monthly work order under their name or by a computerized system.

There is nothing wrong in discussing with each technician how many dollars of supplies they have been using each month and there is definitely nothing wrong with asking Joe why he is continually running 30 per cent higher than other members of the staff. Often when controlling expenses all it takes at times is letting the staff know that you know!

If you still think it’s not worth worrying about, check out these numbers below and then look at your own financial statement.

Remember every dollar saved in this account goes straight to the bottom line, so here is an example of a medium size store with an average service department gross profit of $150,000 per month and shop supplies running at 2 per cent = $3,000 X 12 months = $36,000 for the year, all of which could have gone to your bottom line.

So, here is another example based on $150,000 gross profit and the shop supplies running at 3.5 per cent = $5,250 X 12 months = $63,000 per year. Remember if you don’t measure it you can’t manage it!

JAMES JR TIP OF THE MONTH
Put a very pleasant letter together and send it out to all of your suppliers, it might go something like this. “We have appreciated you as one of our suppliers over the last several years, but as the current marketplace has become very tough we are requesting you to re-quote on your present prices.” You might be very surprised at the reduced prices you may get from some of your suppliers.

The post Sundry shortfall appeared first on Canadian Auto Dealer.

In our first installment for this series, we mentioned that personnel expense should not be more than 50 per cent of gross profit. Having said that (and with a thrifty Scottish background we might add), one doesn’t like to see it go over 45-48 per cent.

So let’s take a look at what is often grouped in this personnel account: owner salary (better move on!), supervision salaries, clerical, benefits, workers’ compensation, other salaries, and absentee wages of productive staff. That should pretty well do it.

We like to write down every staff member’s name on a chart to find out what everyone does, and have the manager rate them on a scale of 1-10 based on overall performance, 10 being the best.
Eights or better are fine, but what if you have some fours or fives? Chances are you can coach and train them all you want but ultimately, you’ll never turn them into an eight, which is what you need if the store is to reach its full potential. Quick question: “Have you ever worked out what your full potential actually is?”

ACCOUNTABILITY
As a general rule, there’s approximately one service advisor to every five technicians at most franchised dealerships, but this can vary according to the hours of operation and the volume of work orders. Of course, the fastest way to bring personnel expense in line with gross profit is to sell more and increase the gross profit ratio.

If you have a problem with high personnel expense, the key areas to look at could be low gross profit, or it could be that you are paying staff too much to get the job done.

All too often in this industry, we do a terrible job of making staff accountable for getting work completed effectively or carrying out regular performance appraisals. When the staff try to tell you they are already working at capacity, there is nothing wrong in helping them re-define the definition of the word busy!

Another concern with some managers is that they tend to throw money at a problem rather than leading and coaching staff by giving them a compelling vision of the future. There might be some staff members only putting out 60 per cent of their potential, the key could be in finding a way to unlock the other 40 per cent. Fun business, isn’t it?

WHERE’S THE ROI?
Controlling this particular expense account to some extent is the direct responsibility of the line manager, provided they’ve been given a fair allocation of expenses. If you have a good secretary treasurer, then getting that person involved never hurts. It is amazing however that when you ask said treasurer if they can break out the personnel expense how often the response back is a definite “no,” often because they are “too busy.”

One dealer told us recently that he wants his staff to make above average salaries, provided they are linked to performance. His concern was that the staff were being paid extremely well, but that he was not getting a desired return on his investment.

It turned out that some of his long-term key employees were performing well below an acceptable level and that replacing them was going to be very expensive. We know one dealer who has lost six out of seven wrongful dismissal cases — resulting in a policy of putting up with inept staff. It always amazes us when asking a dealer this question, if you hire someone in the showroom and find out they have a poor attitude, low closing ratio and terrible CSI how long do they last? The answer normally is not long! So why is it we seem to put up with low producers in the service department for ever, making it very difficult to get rid of them without it costing huge money?

JAMES JR. TIP OF THE MONTH
Review all of your personnel pay plans and see if, along with job descriptions they meet the rigours and challenges of today’s business. Do your pay plans reflect the skill levels of the work being done, or can the work be done by a lower skill level? How many of your personnel are crossed trained? Look to see if there is a more efficient way of getting the job done. If you do decide to change a pay plan, we recommend that you run it parallel for 90 days and pay the greater of each one as a pilot. This gives the opportunity to iron out any concerns.

We know that people are very sensitive to money — we stopped paying people once and got an
instant response!

The post The human factor appeared first on Canadian Auto Dealer.

Many of us remember when the value of the parts on a work order often exceeded the labour dollars. That was in the days not so long ago when you installed rebuilt engines, transmissions and other high-dollar components — all in huge quantities.

But vehicle quality has improved significantly since then and our focus has now shifted to preventative maintenance.

This poses an interesting question. What is a good parts to labour ratio? Well it depends on a number of factors. The opportunity to sell parts may be higher for some franchises than others. Some brands now have an extended oil change service with a very expensive and creative visual inspection. This in turn creates low parts sales and high labour revenue — some vehicles, for example, require brake servicing every 20,000 km.

Having said that the reality is if you measure it, you can improve it. So let’s look at some basics.

Different wavelength
The parts manager and service manager are two different animals with two different agendas!

It’s amazing how many parts managers don’t get along with their service managers, and vice versa. It’s mainly because they have vastly different agendas and social styles — “Driver versus Analytical.”

From the parts manager’s point of view
A number of parts managers I work with would rather sell parts wholesale with low margins than supply them quickly and efficiently to the service department, even though the latter avenue yields higher profit and less risk. Ask a parts manager who their best customer is, It’s not often they will likely say the service department.

From the service manager’s point of view
Most service managers will tell you they get paid on labour sales, not parts, and with the labour gross at 70 per cent, that beats the hell out of selling parts. Technicians tell me that they would rather let the customer’s vehicle continue to run with a plugged air filter than waste time waiting at the parts counter for a new filter — a part that they often don’t get paid to install. Makes sense to me!

Things to consider
• In some market areas, the last few months have been slow for the service department. Technicians are running out of work but at the same time the special parts bin is full. Instead of getting them installed, we see the parts manager busy sending parts back and using up their return allowance;

• In all the years of driving and having vehicles serviced, not once has anyone tried to sell us a set of wiper blades. I know why; do you?

• Ever driven at night and been amazed how many vehicles have a driving light out? Have you checked the parts department to see how many bulbs actually get sold?

• There are many vehicles now with pollen filters that used to be expensive, but often customers are not aware of them and it appears neither are we! Take a look at how many you sold last year, the good news is that many manufacturers have dropped the price on these filters;

• Some dealers think that because they have tires on display in the drive-through, they are in the tire business. It is true that we sell more now than we used to, the question is how many more could we sell if we were focused on it?

• Take a good look at any coolant flush work order and see how much incremental business was sold — like a thermostat or a belt. Ever wondered why the customer is back two days later with a coolant leak? It appears that due to extended-life antifreeze in many vehicles, some stores have stopped selling this service completely, probably because the technicians don’t like doing it!

When working in dealerships we love having meetings with the technicians and asking them what sort of job they do selling specific parts. When they claim they are doing a good job, we then ask them, “so where are you getting the parts from because they are not being sold by your parts department?” Parts history is easy to check.

Recently we discovered that during a 12-month period, a store in the metro Toronto area had sold less than 50 of their fastest moving air filters and only 30 pollen filters. These are not unusual numbers and you have to bear in mind that this particular store does a huge number of oil changes.

As a general guideline, we like to set a goal of 80 per cent parts to labour ratio, which might be tough to achieve in some dealerships.

On a final note, we had a service manager ask why his parts manager will sell a fuel filter wholesale with a 15 per cent mark up and deliver it across town, but won’t deliver it his own store techs with a 40 per cent margin?

Hell of a good question!

The post Measuring service appeared first on Canadian Auto Dealer.

Last issue, we introduced this series on the six KPI indicators for losing money in the service department. To recap from last month, when the bottom line of a service department is weak, it is more likely caused by small amounts of bleeding in a number of accounts, rather than a major hemorrhage in only one area.

In each subsequent issue, we’ll examine one of the six accounts in detail. So let’s move on to the first KPI that can cost you huge money in the service department — when your gross profit customer-paid labour ratio is running under 70 per cent.

Determining your ratio
We recently asked a new service manager to define what exactly is the gross profit on customer-paid labour. You have to understand that this particular service manager was recently promoted and had received zero formal training to do the job — unfortunately not an unusual situation. It might be a good idea then, to start with the basics and not make assumptions.

Gross profit on customer-paid labour in the service department is sometimes referred to as the first split of the dollar, or the markup between the selling price and the cost of sale. Let’s look at a few examples.

Example A: You pay a technician $8 for a job you sell for $25. Your gross profit would be $17 ($25 minus $8). To put that gross into percentage terms, take the gross profit in dollars and divide it by the selling price; $17 divided by $25 equals 68 per cent.

Example B: Let’s assume your door rate is a low $80 and your technician’s rate is $23. Eighty dollars minus $23 equals $57. Fifty–seven dollars divided by $80 equals 71 per cent. Therefore, with this example, you started out with a potential 71 per cent gross profit ratio on customer-paid labour.

What’s pulling it down?
The obvious questions is: If I have a 71 per cent margin between the posted rate and the technician rate, how come I only have 65 per cent or less showing up on the financial statement? This is a list of what we often find when analyzing what happened to the other six per cent.
• Poor effective door rate;
• Paying technicians to do semi-skilled work, like oil changes and tire rotations;
• The control tower over-paying technicians on flat-rate jobs;
• Service advisors discounting work and not being made accountable;
• Seniors’ discounts being given on already-discounted menu pricing;
• Incorrect estimating and the subsequent discounting which follows;
• Paying technicians for work and not correctly billing it out;
• Menu pricing improperly calculated;
• Too many one item work orders.

Here is a frequent problem: your technician beats the flat-rate system three jobs in a row by 140 per cent. Then they get a job that takes them 0.5 hours longer than estimated and then complain that the additional time can’t be charged to the customer. Sound familiar?

Do you really want to increase the door rate?
Last year, a dealer phoned to tell me he had increased the posted door rate and given the technicians a salary increase based on a percentage of the new rate. This had the effect of lowering his gross profit by two full points. The problem, was that the dealership had not taken into account the effective door rate, which is reduced by all the maintenance-priced items. Let’s look at a few examples that demonstrate this type of bleeding.

Example 1: A licensed technician does an oil change special. Labour is charged out at $10, with the filter at $6.49 and oil at $13.59. The technician is paid 0.3 at $23 per hour, which translates to $6.90. Your gross is $10 minus $6.90 or $3.10 divided by $10 equals 31 per cent. So your gross profit on customer-paid labour ratio is 31 per cent — not surprising when the effective door rate for this job was only $33 per hour!

Example 2: A trained installer — not a licensed technician — with a bonus does an oil change special. Labour is still charged out at $10, with the filter at $6.49, and oil at $13.59. The installer is paid 0.3. Your gross is $10 minus $3, which equals $7. Seven dollars divided by $10 gives you a 70 per cent gross profit to customer-paid labour ratio.

Example 3: The department offers a four-wheel alignment for the special price of $76. The department also has a seniors’ discount of 10 per cent. Now, that alignment is priced at $76 minus $7.60, or $68.40. The technician is paid 1.2 hours at $23 per hour, or $27.60, for $40.80. That amount, divided by $68.40 gives you a gross profit on customer-paid labour ratio of 60 per cent. (Note: the effective door rate on this job is $57).

The above examples point out what could be done. We should be matching the correct skill group to the job on the work order. The days are long gone when we realized the full door rate. To keep a reasonable gross profit percentage requires measurement and accountability. Ask yourself this question: Is our industry short of technicians or trained installers? The good news is that controlling margins on labour is relatively easy, providing we know what to manage.

James Jr. tip of the month
Variable door rates have been around for years but can be confusing. For example, on one work order you could have the following examples of three different rates. Complicate things even further by paying the technicians different rates and the payroll department will quit.
• Posted door rate $98;
• Line one: LOF based on an effective hourly rate of $32;
• Line two: Four wheel alignment effective hourly rate of $73;
• Line three: General repair effective hourly rate $98.

So here is one way to skin the cat, which is not new but can work well. Pay the technicians 30 per cent of the labour dollars, so for an oil change the technician gets 30 per cent of the labour and 70 per cent hits the statement.

The post Bad ratios, big losses appeared first on Canadian Auto Dealer.

Today, more than any time in the history of the automotive industry, it is important to have a service manager who understands the financial Key Performance Indicators (KPIs) and how to keep them on target.

Information technology has made it easier to monitor many of these accounts, but it is still amazing how many managers appear to lack a full understanding of how they impact profits and can chew up the bottom line.

In visiting dealerships, we constantly hear comments like this, “our sales are only down slightly over last year but financially it appears we are hemorrhaging, why is our bottom line so weak?” The problem is often caused by several accounts being out of line resulting in small amounts of bleeding rather than one account losing so much blood it looks like a murder scene.

We have spent several decades on the road working with the best of the best, those managers who seem to be able to do no wrong when it comes to running a profitable service department. We have also worked with those managers who don’t know where they are going or how to get there, but they can tell you a number of reasons why things can’t be done to improve their own operation.

PROVIDING FEEDBACK
So why is it, with financial information so easily available to today’s service managers, via computerized accounting systems, that few managers fully utilize this resource? You should be driving your business by measuring critical areas of the service operation on a daily basis and putting processes in place, making all the staff accountable for producing the numbers. We believe that the number one job of a service manager is to give daily feedback on how the department is performing.

If you want poor service department performance, here are six KPI indicators guaranteed to lose money in the service department.
1. Gross Profit to Customer-Paid Labour under 70%;
2. Customer-Paid Parts to Labour ratio under 60%;
3. Personnel Expense over 45% of Gross Profit;
4. Other Supplies above 2% of Gross Profit;
5. Policy Work (or comebacks) over 2% of Gross Profit;
6. Average Hours per customer-paid work order under 1.6 hours.

At the end of the day, remember this: The only thing you have to sell in the service business is time or hours — you either sell it or you eat it! If you don’t measure it, you can’t manage it! When you sell the time, how many dollars fall to the bottom line depends on how well you manage and control expenses.

In defense of your hard working service managers, I must say if we trained airline pilots the same way we trained service managers I would be staying home and not living under a flight path.

EDUCATION IS KEY
When was the last time your service manager attended a bottom-line-driven seminar on being proactive in today’s marketplace? There are times when we work with hard working managers who want to get the job done, but are still not sure of what makes up a good or bad industry number.

Over the next few issues, we’ll take a closer look at each of those six KPI indicators and ways to lose money. We’ll start with gross profit margins on customer paid labour.

Final thought: Customer traffic was slow again in some market areas last year — but this should not be used as a crutch, or reason for having a poor month! How did your service department perform on those six accounts? These numbers are directly controlled by management. If you’ve got low gross profit margins on labour, the parts and labour ratios are out of whack, and low hours per work order, etc., all you’re doing is screwing up the little traffic you do have.

Here is a classic mistake — the service department increases the door rate and pays an hourly rate increase to the technicians, only to find out that the gross profit percentage on customer paid labour decreased. The question is what caused the problem? Did someone forget to increase the menu pricing which can account for 70 per cent of the business?

JAMES JR. TIP OF THE MONTH:
Review and update the service department’s pay plans if they do not currently reflect the challenges of today’s business environment. As an example, we frequently find service advisors being paid for parts sales which are mostly captive, but nothing based on hours per work order which is often the biggest money maker.

Have you looked at your customer paid labour gross profit margin lately:
• $85,000 CP labour with 66% gross profit = $56,100
• $85,000 CP labour with 71% gross profit = $60,350

That is $4,250 more dollars per month or $51,000 per year to help pay the expenses for running the department. We will be discussing this important measurement in the next issue.

The post Six KPI numbers to consider if you want a good bottom line appeared first on Canadian Auto Dealer.

Around five years ago we wrote an article on the automotive industry in India and had meetings with the Indian Automotive Dealers Association in New Delhi.

One of the most mind blowing experiences was their belief in Atithi Devo Bhava which roughly translated means “the guest is God.” This isn’t just a mission statement that no one cares about, it is a mantra by which they live every day. It really is about treating customers with the utmost respect and showing complete transparency.

LOOKING IN
Every service department we visited had a huge window in the customer reception area looking into the workshop, in comparison there is a new dealership where we live in Canada that has a small window in the reception area painted over. When we asked the dealer about that he said, “because the technicians did not like the customers watching them.” So what were they hiding?

Recently, we decided to visit India again but on this occasion went to Mumbai (formerly Bombay) which has a population of more than 20 million people. Our main interest on this trip was to focus on the world’s cheapest car, the Tata Nano, and see just what went wrong with the marketing.

When it was released back in 2009, the Nano was supposed to take the world by storm. Being driven around Mumbai (there is no way you would want to drive yourself here), it was amazing to see numbers of Mercedes-Benz, BMW, Jaguar and Audi models on the streets but not a Tata Nano in sight!

It was reported back in August that Tata (which now owns Jaguar), sold the same amount of Jaguar XF sedans as Nanos with a price ratio of around 14:1.

SNOB APPEAL
The sharp deceleration of the Indian economy has no doubt hit vehicle sales across the board and isn’t helping to sell the Nano, but it also appears that Tata misread the market. With the middle class expanding, the Nano was aimed at the two-wheeler market — it’s amazing to see a family of five riding on a motorcycle or moped! That said, the new middle class are looking for more prestige and don’t want to be seen driving the cheapest car in the world. As a result many of them are setting their sights on something a little more expensive than the Nano.

It is rumoured that Tata spent close to $400 million developing the Nano and hundreds of millions more building a factory capable of manufacturing 15,000 to 20,000 of these cars per month. This is an amazing vehicle considering you can change from compressed natural gas to gasoline on the fly by turning a switch on the dashboard.

Despite its size, the Nano is considered one of the safest cars in India. According to Tata it has passed all local safety standards including a front impact test, though it would be interesting to see what kind of engineering updates it would need to meet North American standards.

COULD IT SELL IN CANADA?
Currently, the Nano is powered by a two-cylinder, 37 horsepower engine which can automatically switch from compressed natural gas (CNG) to gasoline should more power be needed. If it were fitted with a bigger engine, power steering, air bags and traction control, then maybe we could see them on the road in Canada! A fuel-efficient low emission vehicle with a four year or 60,000 KM vehicle warranty and built-in maintenance service package for under $10,000 has to have some appeal and considering that Tata owns Jaguar and Land Rover, setting up a dealer network probably wouldn’t be too difficult.

From a personal point of view what we would really like to see India export is their attitude to customers. Our experience showed dealership staff to be pleasant and hospitable, always going out of their out of their way to make you not feel like a nuisance!

We watched with interest how staff handled customers in the service department — to begin with the service advisors always seemed to stand up when greeting a customer. It was also evident that service managers spend more time talking with customers and staff instead of sitting in an office. One manager told us “we try to make sure every customer leaves us happy and fully understands the work we did.” In short, they aim for complete transparency with their customers. Compare that to a study carried out in North America which showed that around 70 per cent of our customers leave our service departments not fully understanding what we did, or more importantly why we did it!

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For certain, vehicles still break down and have to be repaired, but not as often as they used to. According to J.D. Power’s’ most recent vehicle dependability study, which was based on a failure rate per 100 vehicles over a four year period — the failure rate decreased from 171 per 100 down to 132 per 100 (a 29 per cent decrease). And it appears this downward trend is set to continue.

The customer appointment lead time in many stores is down from 7-8 days to 1-3 days. Some service departments have seen the average customer paid hours per repair order drop from 1.8 hours per order down to 1.2 hours per order. To sell 70 hours per day, that means instead of 39 customers you now require 58 customers. That’s a 49 per cent increase in customers just to sell the same hours — have you worked out where those customers are going to come from?

Wowing your customers and increasing retention will certainly help, but a 49 per cent increase in customers just to stay even is going to take some radical thinking and changes in the way we do business.

THE ESSENTIALS
Some things we have either no or little control over, so it might be a good idea to review a few of the basics that we can have a positive impact on.

Take a look at your service department at 7.30 a.m.

in the morning, sometimes it reminds me of a bank, customers lined up outside peering in through a locked door wondering if you really want their business. OK, so now it is 8.00 a.m. in the morning, the question is how many technicians do you have in coveralls, looking for their first job and ready to start work? And don’t take the common excuse they come in late, but don’t mind staying late to finish a job!

Back to the math, look what 15 minutes per technician per day can cost you? 12 technicians X .25 hours per day = 3 hours. Now take 3 hours X 241 working days per year = 723 lost hours X a modest effective door rate of $85.00 = $61,455 in lost labour sales. So if the parts to labour sales is .8 that = $49,164 in lost parts sales. Now we have lost total parts and labour of $110,619 X 55 per cent gross = Total lost profit of $60,840!

Now let’s review what happens when we lose two customers per day, because we did not follow up and re-book them! Instead we assumed that they would re-book, but in fact they probably finished up going to an independent. By not following up on the no shows the customer in turn puts little value on our appointment system — try not turning up at the dentist and see what happens!

Two appointments missed per day X 21 working days X 12 months = 504 per year X 1.8 hours per repair order = 907 lost hours X $85.00 effective door rate = $77,095 in lost labour sales. With a parts to labour ratio of 80 per cent that works out to $61,676 in lost parts sales. Total parts and labour lost sales = $138,771 X 55 per cent gross = Total lost profit $76,324!

CHANGE IS NEEDED
Last but by no means least we are going to take a look at the impact of hours per work order, which is getting harder to maintain as vehicle technology changes and we continue to under train service advisors, implement an effective customer handling process and try running the business the same way we did 10 years ago even though the financial statements tell us it is not working. Einstein’s definition of insanity: “Doing the same thing over and over again and expecting different results.”

In this example, we are going to use 50 customer paid orders per day X 21 working days = 1,050 orders per month X 12 months = 12,600 per year. Now X that by .4 hours = 5,040 hours X $85.00 effective door rate = $428,400 in increased labour sales. If your parts to labour ratio is say .80 this would = $342,720 in parts sales. The total parts to labour gained would be $771,120 on 55 per cent gross, which works out to be $424,116 in profit!

Look at it this way $424,116 gross profit divided by $1,500 new vehicle average gross = 282 new cars sold!

For sure the bad news is it now takes more customers just to stay even. The good news is that most stores can make a significant increase in the bottom line just by working smarter and implementing an effective process for running their business.

The post Our changing service industry appeared first on Canadian Auto Dealer.

It’s well known that many dealerships today are struggling with retaining their customer base, despite the fact that the vehicle park is growing and the average age of cars on the road is increasing. So let’s look at some hard facts. From a visual point of view, we work with dealerships located on busy intersections with huge traffic flow going past the door. The trouble is that traffic doesn’t stop and drive into their service departments. A recent survey in the UK showed that 70 per cent of customers believe that vehicle maintenance is a complete waste of money, so you had better do something to educate your customers and keep them coming back.

WHAT KEEPS CUSTOMERS LOYAL?
CRM tools and fancy customer loyalty systems work to some degree, but it appears that around 75 per cent of customers surveyed say that they return to the dealership based on their last experience. The question is, are you truly striving to exceed your customer expectations and leaving them with a “wow” experience every time they leave your store, or are you more hung up on what the staff want? No doubt menu pricing and being price competitive helps with retention, but what about customer convenience. It is mind blowing how many dealerships have tried fast service bays only to close them down a short time afterwards, mainly because they adopted a dealership mindset to operate a different type of business instead of thinking outside the box.

Often we hear dealership people running down aftermarket operations, without even taking the time to send a vehicle there and see how they operate. “Maybe do it on a Sunday!” We have tried several times to get a quick oil change at the local dealership, but have given up. They never appear to look busy, but when you ask the questions — such as can I get an oil change whilst we wait? — it’s as if you’ve just asked for the moon. Have you ever walked into an empty restaurant or hotel and been asked by a miserable employee looking down their nose, did you make a reservation?

When will we wake up?

We still believe that the main purpose of the business is to solve your customer problems and the objective is to make money, not the other way around. The more transparency you have in dealing with the customer the more trust you will build, which seems to be an area sadly lacking in our dealerships both in the past, present and likely the future too!

We get tired of making suggestions that will build our customers’ trust only to be told that is a great idea but our staff won’t like it or won’t do it, which takes us back to why we are in business. We told a dealer recently that business is like a baby’s diaper, if it stinks change it. His comment was, “I don’t believe we stink that bad.” So what is that smell coming from the service department?

Who is leading the industry?
We might be leading the industry with fancy new buildings and OEMs that appear to be hung up on image requirements that demand you spend millions of dollars. But before you spend the money, maybe you should be asking what the customer cares about, but again they appear to be the last thing on the list. Quick and convenient service at a fair price is high on your customer’s list along with, “I trust them.” Ask yourself who was it that started late night opening and Sunday service? The list goes on with lifetime brake pads, exhaust systems and oil changes that allow you to stay in your vehicle. We have used a tire shop in town for around the last 15 years and it’s not because of price — over the years, many of the staff have changed but one thing remains the same — they are friendly and can’t do enough for you — you even get to talk with the mechanic! Someone in this store is setting the standards and understands that they are in
the people business — it just happens that they maintain and repair vehicles.

Understanding the facts
In most markets it appears that service appointment lead times have dropped from 7-10 days down to 1-3 days even when using retention programs. This should be an area of concern, but there are more challenges. Customer paid labour hours are down typically from 2.4 hours to 1.6 hours which in real terms means this: to sell 70 hours per day, instead of 29 customers you now require 44 customers. “That is a 52 per cent increase in customers just to stay even and we have not talked about the drop in warranty dollars.” We are not in a recession — this is a market adjustment. Now could be a good time to look at what you are doing well and where you’re missing the boat. Where are your roadblocks? Is the challenge from lack of training or is it the staff’s reluctance to change and really put the customer first?

The post Retention roadblock appeared first on Canadian Auto Dealer.

There is a popular book called Don’t sweat the small stuff and it’s all small stuff. This might be considered good advice by many for living your personal life, but not if you expect to run a profitable service department and make any money doing it.

The challenge with modern vehicle technology is that all we are left with is the small stuff as major component failures are fast disappearing!

Why are we leaving legitimate money on the table?

True, it does not sound very exciting, but to survive in the service business these days you have to learn how to pick up the crumbs. You need to generate the point one and point two small labour jobs on each work order. The staff might try telling you that the biggest challenge is getting your customer to spend their money, but in reality it is getting both the service advisors and technicians to properly inspect the vehicles and ask for the business.

TAKING OFF THE BLINKERS
For a number of years we have been telling our own customers to think outside the box and become more creative if they want to stay profitable, while competing in our current marketplace.

Have you noticed how many independent detailing shops have opened recently? Additionally, these detail shops also appear to be doing a good job of getting into accessories and window tinting not to mention dent removal. This work is mostly being done on your customers’ vehicles, by the independents who are eating your lunch and doing a great job of it. We recently visited some detailing shops pre-appointing customers for their next visit. It appears that they get more money per customer from detailing than we do on yearly preventative maintenance schedules.

Can you remember the time of the minor and major tune ups? The four-barrel carburetor overhaul service has gone and it is not coming back. We work with technicians today who have never seen a carburetor let alone worked on one.

You may have also noticed that the distributor points and condenser have also disappeared. Some fuel filters are now in the gas tank and other vehicles have lifetime transmission fluid. Most manufacturers are gradually following Europe’s lead with extended service intervals, further drying up our traditional business. The big question is, are you smart enough at managing to replace this loss of business with items like fluid services?

It is not that unusual to see service departments with customer paid work orders decreasing along with the average hours per work order, warranty sales and poor parts to labour sales ratios. Unless you can sell 30 per cent to 40 per cent more vehicles each year, which is not likely, then this trend of less customers is obviously going to continue.

WHAT DO WE CALL THE SMALL STUFF?
The crumbs are the point one, point two and point four labour operations that we have a tendency not to ask for, for example light bulbs, belts and engine shampoos. Then there are the zero labour operation items like air filters and wiper blades. If you want to see how much business you are missing then go to your parts department and ask how many wiper blades you sold last year, or ask how many of your fastest selling air filters you sold last month compared to the ratio of oil changes.

DON’T BLAME THE TECHNICIANS
There are many jobs that some technicians do not want to do and who can really blame them! Here is an example; the vehicle requires an air filter which is no longer easy to check. The technician removes the filter and goes to the service advisor who has to then sell it to the customer. The problem, is that the advisor is busy so the flat rate technician has to stand, wait and lose money. How would you like to install a bulb for .2 hours when it takes .6 hours to get it sold? Can you imagine motivating a car salesperson by telling them that every time they sell a certain model vehicle it will actually cost them money — how many do you think they would sell?

WAYS TO IMPROVE BUISNESS
There are a number of ways in which you can improve business and one of them begins with identifying the weakest areas. We suggest logging onto www.fixedbygac.com then click onto “Download forms.” There are some great free management tools you can use.

Our suggestion is start with “Key ratio comparisons” and identify where your weakest areas are. You will also find a “Walk the vehicle and pop the hood” inspection sheet, to be completed by the service advisor at the time of write up. It is easy to complete and if used properly will pre-sell you more bulbs, wipers, belts, tires, alignments and a number of other items before the vehicle gets into the shop.

You do the mathematics: If walking the vehicle and popping the hood gets you an increase of .2 hours per order this could be the impact. Example, 750 work orders X .2 = 150 additional hours X $95.00 per hour effective rate = $14,250 more labour dollars in one month or $171,000 in a year plus parts.

IN CLOSING
There is a great quote from Abraham Lincoln, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” Our advice is focus on staff training, process implementation and sharpening the axe before investing money in expensive equipment. By the way business has become a grind, so putting some fun back into it would not hurt.

The post Sweat the small stuff appeared first on Canadian Auto Dealer.

When was the last time that you held a really productive service department meeting and said to yourself, “that was a great meeting.”

The bottom line is that most of us are not good at holding meetings and even if you thought it was worthwhile, many of your staff might have very different opinions!

Did you send out an agenda prior to the meeting and did you or someone take down the minutes? In our rapidly changing marketplace, open two-sided discussions are more important than ever. It is also worth noting that giving feedback after the meeting is also hugely important, so you had better get your ducks in a row before bringing the staff together.

Telling the staff there is going to be a meeting they have to attend and not giving them enough notice is a big complaint, followed by not letting them know what the meeting is going to be about. Avoiding the input of your staff is another complaint. “We work for a dictatorship, all we got was beat up!”

You honestly don’t have to be a rocket scientist to know that this type of formal meeting can destroy morale and cause animosity with the employees, not to mention reducing productivity. Last but by no means least, starting the meeting late, losing focus and then finishing late could be the kiss of death.

We have held some of our best meetings around the coffee truck right in the shop, they are quick, to the point, no one has to give up valuable time and the staff are also more relaxed and open to suggestions. The only downside is you might have to buy the coffee! We generally get a much better feeling of team building and then everyone is back to work. Give it a try — you might be pleasantly surprised.

STAFF ARE YOUR BIGGEST ASSET
We believe that your staff are your biggest single asset, so you owe it to them not to waste their time. If you are not setting out an agenda, taking minutes and giving constructive feedback then you should not be holding a meeting in the first place. We are often completely amazed how little most of the staff know about how the service department is performing against their peers, or whether their performance is good, average, or poor.

At the end of the day, meetings should be about opening up two-way communication and sharing information which is why we like to see service advisors, technicians and the parts department all in the same meeting. Some people think we do this because we like to see blood going up the walls which is not true.

TOPICS FOR DISCUSSION
The topics to discuss of course are up to the individual dealership, but here are a few suggestions. We are often told that technicians only care about their last pay cheque, but let’s be honest, often they lack communication and feedback from management so that is all that they know. Many of the staff have seen their salaries eroded over the last few years and are becoming frustrated by the situation. Discussing the current market and listening to their concerns can have a positive impact. Technicians have often complained to us that they are not getting their fair share of the posted door rate. This was mainly because no one had bothered to talk to them about the effective rate which can run significantly lower.

A FEW SUGGESTIONS
When holding a fixed operations meeting there are some key performance indicators that everyone has an impact on, so why not start with those? Discuss how last month’s labour sales compared over the previous year and how the numbers look in the current month. That can lead you into a discussion on hours per work order, which is still a hugely important number to measure. By the way, we like to make both service advisors and technicians accountable for the average sales per work order and believe that both should be measured daily.

How is the shop policy account running? If it is out of line, have some work orders as examples of what caused it — at times 80 per cent of issues concerning this account is caused by 20 per cent of the staff. Ask the staff what they would like to see done to improve business and often they will want some promotions on service specials, to drive the business. This is a good time to explain to the technicians just how expensive it is to put on a good service promotion and ask them if they are willing to buy in. An example would be reducing the usual labour operation time down from 1.6 hours to 1.4 hours. When a manager tells us that his staff will not buy in, it is often because of poor communication and leadership.

There is no point in asking the staff for feedback and then getting upset when they respond, it is amazing how many people believe in freedom of speech until someone answers back. One big complaint from the staff is not hearing back after the meeting. Even bad ideas deserve a reply.

The number one job of a manager is giving feedback to the staff, whether that is around the coffee truck for a 10 a.m. huddle or in a meeting room. Not doing it appears to be a major failing in a lot of stores.

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