ACV facts & figures
At majority of car dealerships, the sales and fixed operations departments are independent and function separate from one another. Dealership fixed ops (parts, service, and body shop) stands on its own, and, despite this industry standard, the fragmentation could take a toll on a dealership’s profitability and productivity.
Isolating the dealership’s fixed operations department and failing to connect it with the sales department can lead to lost opportunities for building relationships with car buyers and gaining loyal customers. It’s particularly problematic during lower sales volume times when dealerships are more likely to cut the automotive dealership fixed operations budget.
If this sounds familiar, you’ll be glad to learn that it doesn’t take much to resolve the fixed operations dealership conundrum and start benefiting from a more collaborative work environment.
Why Does Dealership Fixed Operations Matter?
Car dealership’s fixed operations departments serve a vital purpose. They helps the dealership retain customers and earn repeat sales.
The 2018 Service Industry Study from Cox Automotive found that car buyers who utilized a dealership’s fixed operations after making a purchase were more than twice as likely to purchase their next vehicle from the same dealership, compared to buyers who didn’t have their vehicle serviced through the dealer. Just 35% of those who got vehicle service elsewhere said they would purchase again from the same dealership.
In a typical dealership, annual profits from vehicle sales are generally lower than profits from the fixed operations department. According to the National Automotive Dealers Association, today, fixed operations departments makes up an average of 12% of a dealership’s revenue. However, fixed ops accounts for 60% of a dealership’s net profits and approximately half of the gross profits. Without automotive fixed operations, many dealerships wouldn’t stay afloat.
Here’s a quick breakdown of the gross profits for each department on average:
New vehicle sales 5+%
Used vehicle sales 13+%
In 2018, dealerships had roughly 18.6 million more service visits than in 2015. Dealerships’ share of overall service visits jumped from 30% to 33%. There are five main contributors to this trend, which will continue to fuel it in the future:
Dealerships are getting better at cross-selling services. In 2018, 53% of dealership service center visits involved multiple services. This is a huge jump up from just 41% in 2015. The top service combination? Oil change and tires. And two of the top four service combinations included three services. Although oil change as a sole service dropped by 10%, an oil change in conjunction with another service rose sharply.
Recalls Are Raising Service Revenue
There has been a 26% increase in automotive recalls since 2013, involving 42.7 million vehicles. It may not bode well for car manufacturers, but it’s certainly a benefit for automotive dealership fixed operations departments. Recall repairs give the dealership fixed operations department an opportunity to cross-sell additional services and make a personal connection—which could lead to repeat services at a later date.
Improved Service Center Efficiency
Dealership service centers should be focused on improving efficiency to meet demand from more recalls and overcome capacity issues. In 2018, the average dealership had 86% of its service centers occupied at any given time. Inability to accommodate customers creates a negative experience that decreases the likelihood of repeat business. Surveyed customers rank time spent waiting for a service as their top complaint—actually three times higher than dealer’s service pricing complaint.
Dealership service centers should aim to limit wait time to 2.5 hours or less. Research shows that waiting longer than that decreases the chances of a customer returning. If they have to wait 3.7 hours or more, they will use another provider.
To minimize wait times and increase capacity, more dealerships have their service centers open on the weekends, and offer techs overtime pay to stay late. These are just two of the most obvious solutions for maximizing intake, but there are other ways to increase efficiency.
Value Through Fair Prices on Common Services
Not surprisingly, value is the top priority when choosing a service provider. Although dealerships are often seen as more expensive, research supports that many dealerships offer common services at competitive price. Services like oil changes are often less expensive at a dealership than a general service station. It’s part of the reason why dealerships have been able to gain a larger share of services in recent years.
Advanced Automotive Technology
Advanced and increasingly more complex technology is giving dealers’ fixed ops departments an advantage over other automotive shops. It is also decreasing the number of people who perform their own maintenance and repairs. Dealerships are preferred over general repair shops nearly two to one when a vehicle has advanced technological features. Owners of these vehicles put the most emphasis on quality and product knowledge, and their preference for service through the dealership’s fixed ops department is expected to grow.
Location Could be a Barrier for the Dealership of Purchase
Distance/location is the second most common reason car buyers say they don’t return to a dealership of purchase for service. Customers are less willing to travel farther distances for service, versus purchasing a vehicle. Only a third of vehicle owners are willing to drive more than 11 miles for services and repair.
To avoid owners getting work at a dealership other than where they purchased their vehicle, some dealerships are trying out value-adds that mitigate location barriers such as pick-up and drop-off services and mobile mechanics.
How to Optimize Automotive Fixed Operations Departments
Car dealership fixed operations are finally getting the respect they deserve as a revenue generator. It’s got many dealerships asking how they can optimize automotive fixed operations.
First and foremost, dealerships should take steps to make all of the departments more collaborative. Improving communication between departments, encouraging cooperation, and designing the dealership so that interaction is easy goes a long way toward getting more out of fixed ops. Even if your dealership wasn’t the one to sell a vehicle, through exemplary services you can still leverage the fixed operations department to win future sales.
Optimize your fixed operations department with these strategies:
- Promote competitive pricing and price match guarnatees on cross-sell services when owners visit the service department for warranty or recall work.
- Inform customers of future maintenance needs. While some are turned off when being upsold additional services at the shop, discussing future services can increase the chance of repeat services.
- Make it a practice to explain maintenance needs to customers. All of the suggestions need to be justified so that, rather than feeling customers sold to, they develop understanding that there is value in the service.
- Put informative signage in the waiting areas. Signs give customers a way to pass the time, and can help generate additional service requests. Add signage explaining common services, showing what’s covered during an inspection, and promoting the latest special.
- Use a tech solution like Dealertrack to communicate with customers via automated service reminders and recall alerts. Auto alerts can boost services paid by manufacturer and increase general maintenance service requests while easing the workload of the service centers and increase customer satisfaction.
- Plan ahead for strained shop capacity caused by recalls. Consider expanding shop hours or offering complimentary services to customers that have to wait on parts or to get their vehicle in for repair.
- Connect the service department to the dealership CRM so that fixed ops has access to customer information when vehicles are brought in for servicing.
- Hire well-trained and skilled technicians who can handle the full range of services.
- Implement online scheduling allowing customers to see updates and progress.
- Handle detailing and reconditioning outside of the service center so that more bays are available for manufacturer- and customer-pay work.
- Create a positive purchasing experience, including an introduction to the service department. The better the experience is and the more a customer trusts the dealership of purchase, the more likely they are to return for service. A Cox Automotive survey found that the 53% of people who get service at the dealership of purchase, do so because they trust the dealership and 45% do so because they had a good purchasing experience.
- Use special offers on extended warranties to encourage buyers to return for service.
- Loyalty programs are another way to offer value and encourage repeat service. You can give customers discounts on parts and services or even free oil changes after a certain number of customer-pay services.
- Change the profit-sharing structure. Instead of department managers being paid based on the gross profits of their department, pay all managers based on the gross profits of all the departments combined.
Sometimes it also takes a change in how the dealership thinks about the different departments. Instead of looking at it as the Service Department, fixed ops should be considered a Service Sales Department. When you treat fixed ops like a sales department, you’ll inherently make revenue generation rather than expense cutting the main goal.
Start having a daily sales meeting with service advisors and managers. The focus of the meeting should be performance standards, growing revenue and customer retention. It’s also important to review revenue and growth metrics to ensure the fixed ops departments are meeting their goals. The analysis should include:
- How many customers a day service advisors are helping
- Number of repair or service orders per day
- Average service times
- The number of personnel on staff
- Expenses (daily, weekly, monthly)
- Gross revenue (daily, weekly, monthly)
- Number of days worked
- Number of hours in the day worked
- Labor rate
- Inventory levels
The goal is to be constantly improving. By regularly monitoring growth, the fixed ops department will be in a better position to identify opportunities and address issues immediately.
Something that every service department has to weigh on is the number of technicians against performance. Ideally, you’d want to increase both, but that isn’t always feasible. And even if you do everything possible to improve performance it still might not be enough.
For most dealerships, hiring more techs is a must if you’re at capacity and advisors feel like they can’t make more upsells. Before you start hiring techs, it’s important to know the value of each hire. Based on averages of $100 an hour, a tech working full time can generate $200,000 in gross profits. If you can keep them busy 40 hours a week, 50 weeks a year, hiring a new tech is a sound investment.
Hiring experienced techs who work quickly is always the goal but hiring techs with a little less experience can work out as well if they’re easier to recruit. They can handle the simple services and free up higher level techs for more complex jobs. Training can also go a long way towards improving the skills of techs that are newer to the position.
Techs aren’t the only ones that may need training. Service advisors that interact with customers must learn to take a sales approach to build rapport. They need to know how to read people, which questions to ask and who the customer is on a more personal level. It’s this type of relationship building that leads to repeat business.
The fixed ops departments are a core part of any dealership and, in many cases, they are the revenue generator that makes everything else possible. Put effort towards improving fixed operations to go beyond a managerial mindset and you should see a boost in every facet of the dealership performance.