Thinking Outside the Box
Five Ways to Boost Vehicle Service Profits
Vehicle service has long been a staple of nearly every retail tire dealership. The vehicle is up on the rack, the tires are off, and numerous systems are exposed and ready to be looked at. And from the customer’s point of view, it’s convenient to get tires at a place that can do an oil change, brake job or other vital repairs.
Yes, dealers provide vehicle service. But, is vehicle service providing as much profit for you as it possibly can?
The answer to that question could easily be no.
But there are multiple ways for dealers to increase vehicle service profits – and not just from raising rates. A close examination of your service business can reveal welcome profit opportunities. Here are five winning ways you can boost profits on the service side.
Diagnose and Repair the Financial Side of Service
Turning a profit on vehicle service isn’t as easy as replacing a CV joint, or fixing a dragging brake. To make a fair profit, a dealer has to think about how much profit he wants to make – which shouldn’t be hard – and how he wants to arrive at that number. It’s not simply marking something up 100% and walking away. That foolhardy math is not how to increase profits.
Making a profit can and should be a planned effort. To do that, a dealer needs to have a complete understanding of his financial situation at all times. Here are a few suggestions:
- Remember that "profit" is not a dirty word. Many dealers think so, and by trying to keep customer costs low or pass-along costs down, their profit suffers. Quality dealers have quality product to offer. Their customers know and understand this and are willing to pay more for it. If you’re not in business to make a profit, why bother?
- Learn the difference between mark-up and profit, then forget mark-up. If a dealer sells something for a penny, he cannot sell it for 100% profit. If a dealer marks something up 100%, he will actually make 50% profit. Likewise, 50% mark-up is only 33.3% profit, which isn’t good. Remember, mark-up is based on costs, while margin (profit) is based on resale price.
- The customer isn’t always right, but dealers have to treat them like they are. Some customers may be idiots, but if they’re treated like they matter – which they do – you just might be able to change their mind. The customer is essential to profits, and even the tough ones are worth keeping around, as long as you can deal with them.
- Don’t spend more than you make. This is the "no-brainer" of profitability advice, but one that can sometimes be hard to live by. Buying extras for the shop, be it employees, equipment, more space, all look great when business and the economy are booming. But since the economy’s gone south, those decisions probably don’t look so good. It’s better to be cautious in the good times, and prepared for the bad times.
- Understand the dealership’s gray areas. These are elements of operation that dealers don’t believe are important. Some dealers feel that if it doesn’t require their attention, it can’t impact the bottom line. Completely false. Everything about your shop impacts profitability – either positively or negatively. Dealers should always know what’s going on around them. There’s a difference between micromanaging and understanding all facets of the business.
When it comes to making a profit, dealers have to know what their break-even point is. The break-even point tells a dealer how much revenue needs to be generated each day, or each month, in order to pay the bills. More importantly, it tells a dealer the very first moment at which they start to turn a profit.
One way to turn a sure profit is to do quality work right the first time. This saves everyone involved when it comes to added time and money associated with a comeback.
Let’s face it, no dealer wants to do a $59.95 brake job to match a competitor and then see the vehicle come back because inferior parts were used. Now the dealer is out more time and money than if quality parts were used and a higher price charged. Doing it right gives the customer peace of mind. And in the long run, it builds your reputation.
Other ways to help the financial statement include:
- Offer a 10% parts discount to the customer on any additional necessary work that he or she authorizes to be done the same day as the original repair. The dealer is surrendering a discount, but still gaining more work than he had to start the day.
- Saving money is just as valuable as making money. Utilize "leak" control, or the monitoring of half-empty bottles of fluids or various supplies like gasket materials, fasteners, hose clamps or other minor items you usually don’t charge for. There is a separate line item on repair orders to charge customers for these small, yet significant, items.
- "Loss Leaders." Many dealers will discount one item – like an oil change or tire rotation – to drive in business with the hope of gaining other sales or service opportunities. You need to be careful with what and how often you discount. If used properly, this plan can be beneficial. After all, you can’t make any money until the vehicle gets into the bay.
Functional Shop Design Speeds Work, Keeps Bays Productive
There are certain things dealers would probably never think of when it comes to increasing vehicle service profitability. One is the layout of their shop. That’s because dealers can’t – and customers won’t stand for – bill the five minutes it takes to load a vehicle onto the lift or the 10 minutes a technician might spend looking for a specific tool.
The layout of a shop can help to minimize wasted time and make service bays more profitable.The faster you get them out, the more you can get in.
Getting a functional layout isn’t that hard, even for an existing shop. There’s plenty of literature on the subject, equipment manufacturers can always help, and even the employees have some ideas as to how they’d like to the bays work.
Here are three things to keep in mind when analyzing shop layout:
- Provide enough flexibility. Making sure there is good traffic flow inside the building so that any part of the building can be accessed is key. There’s no reason to setup the service bays in a maze-like fashion so that techs have to weave their way around the bays.
- Allocate space correctly. If there is a bottleneck around certain bays, it’s possible there isn’t enough space allocated. Say there are two quick oil/lube bays and four service bays in a shop. If the service bays are continually backed up while one oil/lube bay is practically always empty, space is allocated incorrectly. It’s possible the shop only needs one oil/lube bay and needs to convert the other to a fully functioning service bay.
- Don’t overstock. One space problem is not calculating equipment, tool and parts needs accurately, and overextending on equipment and inventory. Too much can clutter bays and drain profits. If a piece of equipment isn’t used enough to justify its cost, or there are too many of the same parts lying around, get them out of there.
To begin thinking about shop layout, analyze the types of repairs that have been done in the past and that are currently being worked on. Now examine your current equipment – lifts, changers, balancers, tools – to see if they meet your needs. Do you have the right equipment to perform the work you’re taking in? Are the equipment and service bays being used properly? Are technicians waiting for their turn with a particular piece of equipment or certain tools?
Have you ever had to refuse work because you didn’t have the correct equipment or weren’t set up the right way to take on the repair?
Now look into the future and see what types of repairs you’ll be working on down the road. Maybe the market is changing and there’ll be more suspension, or more performance vehicles. A customer profile can help focus a shop layout to achieve the best results while accommodating a wide range of vehicles.
The main thing when it comes to a shop layout are physical dimensions. Things like vehicle length, height, weight and turning radius. These are critical because the shop has its own physical dimensions. But remember, no matter how much effort is put forth, there are just times when it’s impossible to steer a conversion van onto a lift without spending time jockeying around.
That’s because the most important dimension of all is turning radius – the diameter of a circle in which a vehicle can turn with the steering at full lock, measured at the outside wheels. The turning circle is then divided by a factor of two for the turning radius. These numbers are especially critical for shops with a multiple-door setup or a service aisle arrangement.
Keep in mind that as the angle of the bay increases, turn-in area is sacrificed for increased bay length. The more each bay is angled, the fewer the bays that can fit into a shop.
Most passenger cars have a turning radius of 15-18 feet. Light trucks/SUVs will range between 23-26 feet. Vehicles can be unique in their turning radius due to custom alterations to the wheelbase and running gear. Also, these vehicles can have unique overhang situations that should be taken into consideration.
The best shop layouts will achieve a balance of maneuverability, bay size and number of bays. Not all bays can fit all vehicles, so plan to have different bays for different sized vehicles and lifts.
Here are some more things to keep in mind:
- Larger shops need to think about workflow traffic patterns. To reduce bay time, think about putting vehicles that can be serviced quickly near the front of the shop where techs have easier access to parts, equipment and the service writing area. Repairs that take more time can be done at the rear of the shop.
- Technicians will need to leave the service bay to get or use equipment. Try keeping the equipment at the nearest convenient location to minimize movement.
- If a piece of equipment is only going to be used in a specific bay, put it in that particular bay. There’s no sense putting a brake lathe near a tire change station.
As the old axiom goes: Measure twice, cut once.
Find the Right (Profit Making) Service Technicians
One doesn’t have to pay a lot of attention to hear a dealer comment on the lack of quality employees. Dealers are constantly scrounging around, looking for the most qualified employees. And why not? A qualified technician can bring in big dollars. So can a great sales person. Even a well-skilled stockboy can save time and money.
Where can people like that be found? And more importantly, how can they be held on to?
Finding qualified employees to work in your shop is not always easy. The Technician Retention Guidelines by the Automotive Training Managers Council says that young people aren’t entering the service industry because of the need for advanced reading and math skills, fewer vocational programs, and a limited number of apprentice programs.
Dealers need to actively recruit employees – even if there isn’t a job opening. It’s better to have a list of qualified people to fall back on when someone quits. Building an "employee database" can be done in a number of different ways. Talk to vocational or high schools. See who might be graduating within the year and give them your name for a reference when they do graduate.
Other steps include developing a promotional shop brochure, participating in job fairs, and altering compensation plans so that it’s better than a competitor’s.
Another method would be to steal employees from your competitors. Some people could look at this tactic as unethical and a dealer should always keep in mind that his employees could be stolen away from him.
Once you find the right person – through what hopefully is a solid interviewing process – you want to keep them. This might actually prove harder than finding the right person, if only because once you spend the time and money finding and training them, you don’t want to lose them. And remember, many experts believe it takes six to nine months to recoup the investment of finding, hiring and training someone.
The benefit package is the place to start when it comes to keeping employees. Medical, dental, paid vacation, sick days, etc. are things employees – especially those looking for a long-term job – are interested in.
There are also other things to consider as well, such as ongoing training, flexible schedules, and tuition reimbursement. All these things are unique ways to keep employees. Your role in staffing is continuous. It isn’t over when a new employee is hired. And remember, paying more for a qualified employee will earn more money in the long run.
Those are the employees, but what about the dealer? Don’t you want to spend more time actually running your business instead of working in it? It’s hard to split time between managing the business and doing vehicle repairs.
Prioritize your time. Have the right staff to handle the work. Be a delegator and communicate properly. This will lead to a healthier work environment – and improved employee retention.
Get Better Performance From Your Other Employees
Shop equipment can really affect profitability. Whether it impacts your bottom line positively or negatively depends on the equipment and the shop.
Some dealers spend more on equipment than on an employee or two. But the equipment is just as necessary as the employees and the tires and the customers.
Balancers, changers, lifts, tools all affect the bottom line. But are you getting the most out of your equipment?
Here are a few questions to ask yourself when it comes to your equipment:
- How much could that piece of equipment make and how quickly can its acquisition cost be recouped?
- How quickly will the equipment become obsolete or can it be upgraded to extend its useful life?
- How efficiently can the it be used and what can you do to make more effective use out of it?
These questions are critical and can save money – and time. Any piece of equipment should pay for itself in a reasonable amount of time – and that ROI time might differ from dealer to dealer. If it’s hard to upgrade, it shouldn’t be obsolete within a year – or even a few years. And it needs to be used immediately and often for an extended period of time.
Remember, the amount of research a dealer puts into a buying piece of equipment should be proportional to its value and worth. It does no good to agonize over a torque wrench and make a knee-jerk purchase of a tire balancer.
When it comes to capital equipment, for instance, there’s always the question of buy or lease. Which one is better? Depends on your business. Several people need to be consulted before that decision is made – especially your accountant. Things like cash flow, payment schedules and tax issues need to be looked at. A lease can lead to certain tax breaks, but it may be more advantageous to own the equipment.
Whether buying or leasing, dealers should always shop around and try to make a deal. It doesn’t hurt to ask for a discount or to ask for lower payments, no interest, etc. At worst, you’ll hear "no". At best you’ll save some money.
And try to keep in mind, the manufacturer of the equipment wants to see you succeed. It makes sense that if you do well, they’ll do well because their profits are linked directly to yours. When a dealer buys a piece of equipment – especially capital equipment – they’re buying into a partnership.
And when it comes to equipment, remember that it helps make money. Dealers need it anyway, so it might as well pay dividends.
Seasonal Maintenance is Like Christmas in July
Selling seasonal service is always an effective profit tool. What better time to do a full vehicle checkup than during the fall/winter and spring/summer seasons? All you have to do is tell it to the customer.
It’s probably a little harder to sell seasonal maintenance in the winter months. Customers are looking to pay off Christmas bills and are dealing with higher heating costs. But there are many service items that need to be given the once over before the snow gets too deep.
Tires naturally affect traction, handling and braking. Tread depth is critical, as is alignment. Balancing and rotation problems can surface in the form of cupped or uneven wear. And don’t forget about inflation pressure.
Brakes are always important, especially on slick, icy roads. Make sure to check pedal feel and stopping ability. Pulling, grabbing, noise or a pulsation could be signs of bigger problems. Rotors, linings, calipers and drums should also be given the customary inspection, as should fluid levels and the brake lines. Even something as simple as the brake lights can be critical in winter conditions.
The battery takes a lot of abuse in the winter months with colder temperatures and more strain. It’s important to check its condition and charge. A loose cable, a low charge or even bad connections can greatly reduce the life of a battery and leave the customer stranded in the cold.
Dealers also need to work up a spring/summer service checklist. In some areas, the vehicle might have just come through a harsh winter and it needs a thorough inspection.
Alignment may be critical, especially in a market that sees a lot of potholes in the winter months. Suspension and steering systems can also be damaged by abuse, as can tires. Everything to do with the ride and feel of the car needs to be inspected before those long summer days and family car trips.
Fluid levels may have fallen since the last service check, so it’s a good idea to check over the oil, coolant, transmission fluid, power steering fluid, brake fluid and even the windshield washer reservoir. Remember to not only check the fluid levels but the condition, as well. An abnormal look could mean just as many problems as low levels.
Again, as in the winter, the brakes need looking after. Things like pedal feel, pad thickness, rotor condition, and the condition of the parking brake are critical issues and need to be looked at with every opportunity.
Dealers may also want to check exhaust noise. A hiss, whistle or roar could mean a leak – and leaks can be deadly, if not annoying. Also look for excessive back pressure if the engine is sluggish. A plugged converter or collapsed lining could lead to a build up.
And with any spring/summer maintenance check, the air conditioner needs to be in tip-top shape. Coolant may have leaked over the winter or the temperature might need adjusting – things that could save the customer time and irritation.
None of these service checks may be important to customers – until a component fails. Dealers need to impress the value of seasonal maintenance as a way of preventing larger problems from cropping up at in inopportune time.
And saving the customer money now, could translate nicely into return business later.