Are the fixed ops broken?

Transcription

1 Are the fixed ops broken? What happened to our absorption rates? By Brad Fothergill For decades, the New Car Dealership was a family and community affair often with a gas pump out front. Customers could take their cars to the neighbourhood dealer for everything from minor work such as tires, LOF, and windshield wipers to major work such as engines and transmissions. Dealer staff knew their customers by name and would oftentimes run into them socially outside of business hours. Basic vehicle warranty was only 12 and 12: 12 months or miles, and adjustments were covered for only the first 30 days. In spite of the low warranty offerings, customer retention was high, and absorption rates (fixed operation income that covers the fixed costs of a dealership) were higher. What happened? Along with the obvious changes in consumerism, a few major changes occurred in the auto industry that created a perfect storm for a dealership when they culminated at the same time. These changes have had a devastating effect on dealerships Fixed Operations, and absorption rates have dramatically fallen. The following will reference just three of these changes: 1. Leasing: Leasing began as a cost-effective way for businesses to plan their fleet expenses. It later morphed into a mechanism that allowed the consumer to drive more vehicle than they could

2 afford. The need for some manufacturers to push metal out of their factory doors drove their lending institutions to keep raising residuals residual values to percentages unheard of - this was a time-bomb waiting to blow up. Leasing, however, had the reverse impact on a dealership s Fixed Operations. You need ask yourself one simple question: Would you spend ANY more money other than the bare minimum to maintain a vehicle that you didn t own and was going to be returned to the Dealer in a short period of time? - Probably not. It s no surprise then that the average consumer didn t either. 2. Independent Service Providers: The independents have aggressively pursued dealership maintenance and repair business over the years and have increased the number of brands that they service. If we look at today s service department s appointment lead times, we see some of the effect. Two decades ago, the service department was booked a week or more in advance. Today, one or two days is the norm. The increased market share that independents have earned has, accordingly, negatively impacted dealerships Fixed Operations. When a customer gets used to going elsewhere for regular maintenance, it becomes easier for them to stray away from the dealership for their repair business. We all know of examples here so I won t belabour this point. 3. Improved Quality: This has a positive effect for sales if our competition lags, but the effect is neutralized as competitors improve as well. The effect on the Fixed Operations has a far greater negative impact. With improved quality, there are

3 extended service intervals, lifetime transmission fluids, longer life engine coolants, spark plugs, etc... This is evidenced in every manufacturer s recommended service schedule. Even the standard three-month/5000 kilometre recommended oil change is being replaced with engine oil life indicators that may not necessitate an oil change for up to 24,000 kilometres. Gone are the days of the quarterly visit from a loyal service customer. How do we fix the Fixed Ops? A large part of the answer is sitting in your Business Office and Service Department: start selling more Extended Warranties right now! According to one of the Big Three, extended warranties increase the after basic-warranty expiration retention rate by just under 300%! Here are just a few tips that will assist your team to increase extended warranty sales: Tip #1: Have your Business Office present Extended Warranty options to a customer as the first product offered on a turn-over. Dealerships spend thousands of dollars in advertising trying to attract customers, yet many dealerships prioritize the sale of rust modules and window etching ahead of extended warranty sales. We allow the sale of products and programs that may be easier to sell at the expense of future Fixed Operation revenue. Change the order in which your Business Office products are sold. Tip #2: Instil more confidence in purchasing an Extended Warranty by offering a guarantee. With vehicles being expensive to repair today due, in part, to all the high tech and new safety features, warranty costs have risen as well. Why wouldn t a customer buy your manufacturer s Extended Warranty? There are warranty refund programs like Xwrp

4 that refund the consumer s warranty purchase if they don t use it. And don t forget that your customers with extended warranties generally have higher CSI s which brings numerous benefits accordingly. Tip #3: Introduce your customers to your service team. Are your new customers introduced to the service department and a service advisor or are they simply shown where the service department is? Do they know that the technicians at your dealership are manufacturer-trained specialists who know your brand better than ANY independent could or that your parts department uses only OEM parts which is why you are able to offer a warranty on parts and labour repairs? Tip #4: Change your compensation plan. Pay structure is perhaps the easiest way to increase warranty sales. A pay structure should drive an individual in the OVERALL direction that the dealer wants to take. If there is less gross profit in selling a warranty than on another product, maybe it s time to make an adjustment. It s unfair (also unrealistic) to ask someone to sell something that will cost them money when they also have bills to pay. Reward what you expect! Tip#5: Educate the entire dealership on the value of Extended Warranties. When everyone in the dealership understands the benefits an extended warranty brings to a customer, it will be easier for upper management to implement new strategies to assist in the selling of more extended warranties. Organize a couple of luncheons for your dealership staff and run a presentation detailing the features and benefits of extended warranties. Dealer principals should attend to show their support. When your staff has bought-in to the value of extended warranties, they will pro-actively endorse them to family, friends and your customers.

5 Tip #6: Mine your database. Run a monthly report of customers who have not yet purchased an extended warranty when their comprehensive warranty is about to expire. Send them a written notification that their time to purchase an extended warranty is about to expire. Be sure to include a discount voucher in the mailing. Have your Business Manager contact each customer by phone one week after mailing each notice. Faithfully do this and watch your penetration sky-rocket! Tip #7: Spiff your service advisors. Consider providing a referral fee to your service advisors for introducing customers who do not yet have an extended warranty to the Business Office. There will be some customers servicing their vehicles at your dealership who did not buy/lease from you so they will not necessarily be in your database. Tip #8: Improve your website. Only the very wisest of dealers have gone to the effort of creating the need to purchase Business Office products on their websites. These dealers know that over 80% of consumers are researching their next new or used vehicle purchase/lease on the internet so have wisely produced a few pages on the need of Business Office products on their websites. Tip #9: Provide proof of need. Top Business Managers have tools, handouts, and displays which provide customers with proof that an extended warranty purchase is an investment rather than an expense. They use 3 rd party endorsements; it s one thing for you to claim that extended warranties are valuable, but it s a completely different story when an industry expert or organization claims it to be. Tip #10: Keep sending your Business Manager for training. Training is an on-going strategy and not a one-time event. If your Business

6 Manager has not been to a training workshop in the last 12 months, they are leaving money on the table. Technology has also found its way to Business Offices, and your team will be either followers or leaders when it comes to adopting new technologies. If you implement these sales tips, you will sell more warranties! Extended Warranties = Higher Absorption Rates It s interesting to note that many of the dealers who were least affected by the past recession were the same dealers who kept their eyes on the service department customer. Their Fixed Ops never broke. Brad Fothergill is the Program Director of XWRP ( and has worked in the automobile industry for over 20 years. His success has come from his innovation and forward thinking. Submit your comments to brad@xwrp.ca.