Looking to 2019 and beyond, margin compression and customer expectations are among several factors that will increase, while more pressure from both existing and new competition will complicate the automotive landscape further. In the face of these challenges, dealerships will need to embrace rapid change.
Dealerships have operated on a transaction-centric business model – optimizing the vehicle sale. This philosophy has crept into service where we focus on increasing dollars per RO, sometimes at the expense of retaining the customer. But for dealerships to survive and thrive, they’ll need to adjust this strategy to pay closer attention to building long-term relationships in service, with smaller, more frequent interactions over time.
This reinvention will require a shift in how dealerships and their staff operate, but the payoff will be life-long customers who deliver repeat business and more sustainable profits. Creating a deeper and longer relationship with the customer helps dealerships as the automotive industry evolves with changing mobility needs of customers.
The key to making this transition comes down to two major areas of action for dealerships: provide a technology enhanced experience and market yourself as the expert for increasingly complex vehicles.
Invest in the Experience
It is understandable that most dealerships currently focus on transactions. Dealerships are trying to optimize profits at the vehicle sale – the single largest transaction at a dealership. However, we need the opposite approach in service, and dealerships often lose out on more profits long-term that can be earned in the service department as well as additional vehicle sales from earning customer loyalty. The service department now accounts for 49 percent of a dealership’s gross profit, according to NADA’s annual Dealer Financial Profile research, but that doesn’t tell the full story. It also is key to landing repeat sales. Seventy-four percent of customers who visited the dealership in the last 12 months for service are likely to return to purchase their next vehicle, according to Cox Automotive Inc.’s 2018 Service Industry Study.
The focus on service will become even more important in the future.
Maintenance intervals are already widening as vehicle quality improves. The 3,000-mile oil change has been extended to 7,500 miles or higher for most vehicles. As we look at the long-term view, electric vehicles, which have far fewer moving parts and likely fewer service issues, gain a meaningful share of the market.
Dealerships need to start taking action now to ensure their service departments meet and exceed customer expectations. They need to provide a best in class consumer experience to make it easier for customers to schedule service and ensure customers know about these options. According to the 2016 Cox Automotive Maintenance & Repair Study, 45 percent of consumers not scheduling online did not know if their providers offered this option.
Dealers also need to increase capacity and offer more flexible transportation options to make those visits more convenient. They need to make it as easy as possible for customers to use their service departments, understanding that this not only leads to more service visits, but also repeat sales.
Market Yourself as the Go-To Expert
Along with the increased focus on the customer experience, dealerships need to ensure customers fully recognize and appreciate their expertise in both selling and servicing vehicles. Dealerships have a significant advantage in this area.
Dealerships often have more capability to handle complex vehicles with factory-trained technicians, diagnostic equipment and state-of-the-art facilities.
However, dealerships are only receiving 33 percent of service visits in the United States, according to Cox Automotive Inc.’s 2018 Service Industry Study.
This gap creates an opportunity for dealers to better market themselves as valuable when servicing the customer’s investment. According to the Cox Automotive 2018 Service Industry Study, only 24 percent of people prefer the dealer of purchase for repair and maintenance service visits.
To become truly customer-centric and capture more of the service business, dealerships must become the first choice for repair and maintenance. This means continuing to invest in technology and training to effectively deliver this expertise with customers.
As vehicles become more technologically advanced, consumers inherently assume the person selling a complex product is an expert on it. It’s critical that dealerships capitalize on this opportunity now and ensure customers see them as the experts when it comes to servicing these vehicles.
Establish Yourself as the Hub for Mobility Needs
As we enter a new era for the auto industry, this shift to a customer-centric model will become even more important for dealerships. It will serve them well as new mobility options, from vehicle subscriptions to self-driving cars, become more available. If successful, dealerships will establish themselves as the unchanging points for the customer’s transportation needs with evolving mobility options.
The long-term power of the customer-centric approach is that it positions dealerships as the source for service and sales on all mobility options, regardless of which one consumers ultimately prefer. It not only helps the dealership sustain profits now, but also can help them grow their business in the future.