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Profit In The Service And Parts Departments Is Not A Happy Accident

Follow these deliberate and calculated steps to manage your way to net income. BY MICHAEL ROPPO

shutterstock_259209674Profitability rarely happens by accident in our industry, at least not when everyone in each dealership department pays close attention to the critical performance indicators that drive their business in any economy.

I call this “intentional profitability,” which is a planned, management-driven process. It is operating your department or dealership like entering a race – a race you intend to win. The hardest parts about running a service business (in which people are the revenue-generators) are communicating expectations and managing people and processes with integrity, over and over again, without coming off as a dictator.

Repetition is the mother of skill, and a laser focus on the activities below will help you to generate more profitability in the service and parts departments “intentionally.”

Subhead: Key Service Department Activities

Review the service exception report daily. Exception reports help decision-makers (managers) save time, so the managers can move swiftly to resolve potential problems and profit leaks.

Try to eliminate one-line repair orders. One-line ROs are a good indicator that service advisors are just taking orders and may need some training or guidance on more effectively selling services.

Train your service advisors to sell suggested and required repairs and needed services, on a regular basis. The principles here are to offer suggested repairs in order to persuade the customer to set up the next appointment, and to get the required repairs taken care of during the current visit.

Consider implementing a pay-for-performance plan that will help all advisors be more forward about presenting suggested and required repairs to every customer. When those repairs are needed, that is! Presenting additional value-added services should be both a general goal and a performance metric for your advisors, as reflected in their pay plan. They should be compensated based on appointments set, effective labor rate retention, hours sold, highest sales and gross producer, etc.

Have the top salesperson on your service staff daily train the other advisors about how to sell value. Each and every customer who comes into your service department expects to be served in a value-added way. Customers logically expect to pay for value, so make sure your staff communicates a level of value (features and benefits) that is commensurate with what you intend to charge.

Analyze the amount of service work vs. the number of techs in your shop. Make sure the work is being scheduled and distributed properly. This advances the abilities to sell more value and get work performed properly in a timely fashion.

Is it possible to increase the number of ROs per tech? Can the dealership maximize the number of hours on a repair order by making sure the technician’s skill level is in line with the repair’s complexity? This allows techs the opportunity to work on more vehicles.

Focus on the number of hours produced per tech, per day rather than on number of hours per RO. Create a minimal acceptable performance (MAP) guide for every technician and aim for a distribution of work that supports a MAP for 100 percent productivity. Top-producing technicians can produce at more than 125 percent, i.e. 10 to 12 hours of paid time hours in an eight-hour day.

Capture e-mail addresses of all service customers. Customers change their contact information all the time. Therefore, your people should ask review questions that help make sure all pertinent contact information is accurate and updated regularly.

Make sure your service menus are up-to-date and that every customer is aware of his or her scheduled maintenance requirements. Looked at one way, menus are value-added services that must be presented and communicated to all qualified customers. It gives your service department an opportunity to bundle services, as well. If the customer benefits come first, then profits will follow.

Call the day before to confirm all service appointments. Doing so lets you ask additional questions that could lead to more business (e.g., “Is there anything else that we can do for you during that service appointment?”).

Call no-shows to reschedule. Beyond increasing the chances that you will keep the previously scheduled work, this will keep your staff clued in on why the customer could not keep the original appointment and possibly provide some important insights.

Use your service drive to display vehicle specials. Have those specials posted on a daily basis. This allows the dealership to market special vehicles and services to more customers regularly.

Analyze your service pricing override reports on a regular basis. Make sure that indirect discounts (i.e., unintentional discounting) are not happening routinely. You want service and parts margins maintained at a level that benefits both the customer and the dealership.

Don’t discount labor provided to your dealership’s used department. However, do offer that department special pricing for related repair services.

Get a report early each day about how many unsold hours are available, and develop a plan to fill them: Understanding your minimal acceptable performance (MAP) lets you schedule properly and distribute the work based on the skill-level requirements of the job as well as of the technician. There is no reason you cannot maximize the available hours in a7 day for every tech.

shutterstock_280611161Key Parts Department Activities

Review the parts exception report daily. Again, exception reports help your decision-makers save time, so they can move swiftly to resolve potential problems and profit leaks in both the parts and service departments.

Manage days’ supply of parts inventory. According to the NADA industry guide, it should be 45 to 60 days. This is an important factor that drives the service department’s ability to service vehicles on time

Return parts that are not turning. To be successful, parts managers must address parts that are not turning throughout the product’s life cycle.

Require a deposit or credit card imprint for all special-order parts. Doing so will discourage people from ordering parts about which they change their mind or look for a better price from another source.

Is your freight expense being recovered? Make sure the costs of freight and shipping are calculated and added to the cost of the part. Make certain the parts department is collecting at the appropriate rate of ROI.

Don’t discount parts sold to your used vehicle department. As in the service department, there is no need to discount parts that sold on internals.

Review your credit policies and manage your accounts receivable. With so many uncertainties in the retail automotive business, make sure you don’t overextend credit allowances and hamper your cash flow as you struggle to collect. Make sure customers are making regular payments in a timely manner, and all accounts are kept current.

Are you extending credit to customers who are delinquent? Stop doing that! It is hard enough to keep the regular customers current. Why take the chance a previously delinquent customer will fail to pay you again for parts. Make better decisions on a case-by-case basis.

Consider requiring wholesale accounts to pay by credit card. Credit card payments on a regular basis are a recipe for current accounts.

Source: Service Drive Magazine, September 2015

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