Fixed and Variable operations are located under the same roof! Yet, they are often worlds apart. It is time to bridge those two worlds once and for all! As industry greats Bob Atwood and Charlie Polston put it a long time ago: “Fixed Operations is and always will be the Back Bone and not the Back Pain of the automotive industry!” So Listen Up!
Stop thinking of your dealership as the “Sales Department” and the “Service department.” Rather, it’s time to view your business as the “Sales Department” (variable operations) and the “Other Sales Department” (fixed operations). What a great point! So ask yourself:
- How do your service department sales, gross and net profit revenues look so far this year?
- Are you maximizing all of the performance targets of fixed operations in your dealership?
- Are you making and retaining the level of revenues you deserve?
If you answered “yes,” then you need to be congratulated for a job well done. However, if you answered “no,” then the question becomes, what you’re going to do about it and when?
When the variable department starts selling fewer vehicles, the bottom line of their departments financials suffer when this happens, it’s usually too late for a fix and because most dealers come from sales and not service. They will approach the parts and service managers as well team members— the ones making things happen — and instruct them to start cutting costs. Big Mistake Man, Huge!
If you are like many other dealers/managers, you might be focusing your efforts on cutting expenses as opposed to increasing value and revenues.
Question: Do you really believe you can save yourself into a profit?
Here’s how to G.R.O!
- Get More Serious About Fixed Operations Now!
- Realize that there is only three ways to increase net:
- Decrease Expenses (Danger)
- Increase Revenue (Selling your way into a profit makes the most sense)!
- Lower cost of Sales (Danger)
- Consider daily (service sales meetings) with your service advisors and technicians. These meetings should be attended and lead by the best service sales people in the dealership as well as the service manager, the parts manager, the service advisors and at times the dealer principal as we as the general manager!
Discuss the following:
- Getting serious about G.R.O. in service is serious business.
- Communicate goals
- Communicate Minimal Acceptable Performances,
- Hours Produced and CSI performances.
- Areas requiring improvement!
- Make sure you have enough personnel on the service drive during peak traffic
- Know your customer’s expectations!
- Deliver value to each and every customer!
- If your advisors are dealing with more than 16 customers per day, it’s costing you money.
- The more time they spend with each customer, the greater the sales penetration and the higher the CSI.
- For service advisors to reach their sales potential, you have to make sure they have enough support personnel to assist them. This includes porters to move cars and keep the traffic flowing.
- After all, the service lane is really our service “sales floor” and we must keep it
- uncluttered and presentable.
- Consider a “lane captain” to assist in checking the vehicle’s wipers, fluids, batteries, belts, and hoses.
- This person serves as a greeter and a value added support person to the advisor in the process of selling value added and preventive maintenance items and services especially during peak periods.
- Manage And Master the Phones!
- Answer the phones properly and by the third ring!
- Answer the phones in a value added way!
- Know that most incoming calls (like appointments and status calls) can be handled by someone other than the advisor!
- Consider a service BDC!
- This gives advisors more time to spend with the customers on and in the drive.
- This is very important especially during peak times!
- Get In Control! Measure and Manage the 11 Controllable Areas of Service!
- Gross Profit
- Clock Hours Worked
- Percent of Productivity
- Days in a Month Worked
- Effective Labor Rate
- Calendar Utilization
- Number of Repair Orders Written
- Best Practices
- Operational Inventories
- Operating Strategies
At The end of Every Day ask yourself the following:
- How well does our dealership measure up in these 11 controllable areas of service?
- Did my actions today move me, my department and organization closer to meeting its objectives?
- What can we improve?
- Constantly Measure and Monitor The 13 Profit Of Service: They Are:
- Work Distribution
- Progress Checking
- Work Performance
- Vehicle Washing
- Quality Assurance
- Active delivery
- Best Practices
- Increase the number of technicians or improve the quality and performance of them.
- If your advisors don’t provide value added services -aka- (upsells) maintenance for fear they can’t get all the work out, then it’s time to increase and improve your production staff.
- Capacity issues are problems that can create great opportunities for growth.
- You don’t have to hire “A” level technicians.
- Technicians at a “C” or “D” level can perform most maintenance services and
they are much easier to recruit.
- Consider a Personal Service Assistant -aka- (PSA) program!
- Train, Train and then When your done training, train them again!
- Understanding The Math:
The value of one technician is as follows:
One technician producing only 40 hours per week for 50 weeks can produce 2,000 hours of labor per year. This amounts to $200,000 a year in labor sales at effective retail labor collection rate of $100.00 per hour at a 70 percent GP margin — plus a parts to labor ratio $1.00 producing an additional $200,000 in parts sales at a GP margin of 40 percent. This is serious business!
Taking all of the above into account, the dealership can produce close to $220,000 in GP per year from only one technician! Numbers may vary somewhat from dealer to dealer, but when you considering the variables, the gross generated can be significant and maybe even higher, based on some of the assumptions above. You have to sell a whole bunch of iron in variable operations to gross $220,000!
According to NADA statistics, while fixed operations only accounts for 12 percent of the total revenue, it produces over 60 percent of a dealership’s net profits. According to NADA, NCM and many other automotive industry associations, dealerships typically gross:
- 5%+ on new cars,
- 13%+ on used cars
- 39%+ on parts.
- Yet, you gross a whopping 70%+ in the service department.
Therefore, the quickest way to increase gross is to sell your way in to a profit by selling more service in a value added way!
To make the point even more valuable:
Consider the closing rate of ups to sales in variable operations…it’s about 30 percent. That means (For every 100 people in the front door, you sell about 30 cars.) In fixed operations however, the closing rate is usually 100 percent! In service 60 percent of the sale is already done, it’s actually up to you to lose it! Every person that walks through the service door is likely to produce revenues for the dealerships “That’s Amazing!”
Remember: “Liars Can’t Figure, and Figures Don’t Lie!”