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4 ways car dealers and fixed ops managers can amplify service absorption

In Good to Great, by author and business researcher Jim Collins, most top executives are successful because they have BHAG or Big Hairy Audacious Goals. Their goals then become the vision for the company and the driving force behind the entire organization. On the latest episode of Service Drive, host Don Reed, CEO of DealerPRO Training, discusses why fixed ops departments, and auto dealers overall, need oustanding BHAG. 

Since the average car dealer in the U.S. averages less than 60% absorption, a good BHAG in fixed ops would be 100% service absorption. So, why do so many dealers pay little or no attention to their service absorption? 

To achieve 100% service absorption, Reed recommends the following:

  • You can’t manage what you don’t measure. The accuracy of your financial statement is paramount. It is a key form of measurement that enables auto dealers to compare themselves to industry guides. Share these measurements with your managers to track vital performance metrics and understand how they affect the balance sheet.
  • Give your managers their own individual BHAG. When setting goals, you must be specific about them. Put them down in writing. It might be a stretch for some of your employees to reach these goals, but they have to be realistically attainable. 
  • Give technicians daily goals for productivity. Post their daily results on a performance board for their review. 
  • Give advisors daily goals for sales. The goals should include the number of repairs order written, customer pay hours per repair, profit margins on labor, profit margins on parts, and maintenance upsells. Measure these goals and share the results with advisors daily.  

Once these goals are laid out, go back to your calculations and determine how many additional dollars in gross profit you need to achieve 100% absorption. Focus on increasing customer pay parts and labor gross profit. There are three ways to do this:

  • Increase profit margins on parts and labor sales
  • Increase sales per repair order
  • Get more customers and write more ROs

Did you enjoy this episode of Service Drive with Don Reed? Please share your thoughts, comments, or questions regarding this topic by submitting a letter to the editor here, or connect with us at newsroom@cbtnews.com.

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Don Reed
Don Reed
After 26 years in the automobile business as a dealer, GM, sales manager, service manager, service advisor and salesperson, Don began a new career as a consultant and trainer. As CEO of DealerPro Training and founder of The Don Reed PRO Training Network, he has worked with hundreds of dealerships and major dealer groups across the U.S., Canada and the U.K. to increase profits in their fixed operations. He was rated a Top 10 Speaker at the NADA convention for four consecutive years. Visit the firm’s website at DealerProTraining.com.

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