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Owner Retention Versus Owner Replacement

Quick self-exam reveals your inclinations as an ‘empowering leader’. BY DON REED

As part of the fixed operations profit potential analysis that we conduct for our dealers, we prepare a trend analysis for the customer pay operations to track sales, gross profits, margins and repair order counts. This data is then downloaded into line graphs so the dealers can see at a glance where their retail service and parts operations are improving, holding steady or declining. One of the critical performance indicators in this exercise is, of course, the RO counts.

I find the results very disturbing for far too many dealerships since the vast majority of the dealers we analyzed had a total customer-pay RO count in 2014 that was about equal to or below that of 2013. In other words, retail traffic is stagnant or declining. Why?

To begin with many dealers and managers are of the opinion that if their retail traffic is holding steady year over year, they are doing a good job in owner retention, when in reality they are simply replacing the customers they are losing each month with the new customers they are selling new and used vehicles to each month. Consider the following scenario for a dealer selling 150 new and used per month and producing 1,000 retail ROs per month, on average, for last year:

  • One hundred and fifty units sold per month last year produces 1,800 service customers for this year.
  • Assuming this dealer has a repeat customer retention rate of 33 percent, the dealer has a net increase of 1,200 new customers into the service department.
  • This dealer writing 1,000 CP ROs per month would have a total of 12,000 CP ROs for last year.
  • If this dealer retains its customers from last year then the net increase in traffic this year should be no less than 1,200 new customers for an increase of 100 per month
  • This year’s traffic count should now be averaging 1,100 per month, right?

Unfortunately in many stores, this dealer is still averaging about 1,000 RO’s per month or less. Why? Because they are losing existing customers at about the same rate as they are adding new ones. Owner replacement. Do the math in your store and compare last year’s RO performance to this year’s RO performance. Is your traffic going up, going down or stagnant?

If the answer is going down or stagnant then it is imperative that you determine why. Let’s take a look at some solutions to the possible conditions that may be causing your lack of retail customer growth:

  1. The appointment process for incoming calls. Eighty percent of your ROs starts with a phone call while only about 20 percent are from walk-ins and the Internet. Have you had any phone training lately on how to sell appointments?
  1. Informing customers of preventive maintenance. Many advisors are not training your customers on preventive maintenance. One hundred percent of your warranty and retail customers should be trained on the manufacturer’s maintenance requirements and recommendations for both severe and normal driving conditions. A recent AAA survey shows that more than 60 percent of customers are driving in severe conditions.
  1. Conducting an active delivery. Your advisors may not be conducting an active delivery with the customer at their vehicle. Customers must be informed of the “Three Cs” for each service and repair made to build value in the cost of the RO. A thorough review of the features and benefits will go a long way toward building trust.
  1. Setting the next appointment. Advisors should be setting the next appointment for each customer at time of delivery. We do this based on time and mileage. Ever been to a dentist?
  1. Processes to handle “no shows.” All “no shows” are not being called for a new appointment. People forget and/or get busy with other commitments but they still need the service or repair. Again, have you had any phone training lately?
  1. The CRM strategy. Your CRM strategy, or lack thereof, might not be working. Why do dealers consistently spend 25 to 30 percent of their front-end gross in advertising to sell a car to a stranger but won’t spend 10 percent of back-end gross to retain a customer who already owns their product and will eventually buy another one?
  1. The Dealer’s or GM’s roles. The dealer or GM might lack the appreciation of and/or understanding of how to lead and build their fixed operations to work toward achieving 100-percent fixed absorption. If working toward achieving 100-percent fixed absorption is not on your radar then the next recession might be your last.

There is nothing profound in what I’ve covered thus far and for many of you reading this article you might be thinking “Nothing new here!” Well here is a news flash – I agree so why are these seven processes not being followed? I believe the answers are quite simple: Lack of commitment and lack of accountability.

Owner RetentionYour commitment starts with defining the primary mission of a service department, which is to ensure that every customer leaves your dealership driving a safe and reliable vehicle. In addition, you must ensure that you communicate effectively with every customer what is required to keep their vehicle in a safe and reliable condition. This is easily accomplished through complete and thorough multi-point inspections and professionally prepared maintenance menus along with an advisor who can communicate the benefits of following the technicians’ recommendations, as well as those of the OEM. In other words your advisors must advise. Once your advisors know how to properly advise, your sales will increase, your CSI will go up and you will start growing owner retention versus treading water with owner replacement.

Once you get this commitment in place you now must be willing to make this your company policy and as such it is not optional. Policy is policy and should not be ignored by anyone. Those who do must be held accountable for their unfortunate decision to ignore the dealer’s policy. For some strange reason many of you reading this have a difficult time with holding your fixed operations team accountable for their performance or lack thereof in the same way you do for your sales team. For example, if you won’t tolerate a salesperson selling four cars a month then why would you tolerate an advisor selling an hour per RO? If your sales manager can only close 10 percent of the ups, I’m guessing you hope he goes to work for your competitor across town after you fire him. Okay, so how about a service director who averages 60-percent one-item ROs month after month? Most likely he isn’t going anywhere any time soon.

Remember this very simple premise when you’re trying to make a decision with your heart as opposed to your brain regarding an underachieving employee: If an employee cannot perform at the level of a top performer, there are only two reasons for that. One, they don’t know how to or, two, they don’t want to. If they don’t know how to we can cure that with professional training but if they just don’t want to then wouldn’t you agree they have made the decision to “de-hire” themselves?

It’s time for you to get committed and start holding everyone accountable for their individual performance to get on track for making this your best ever in fixed operations.

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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