Are You Clueless when it Comes to Building Repair Work and Diverse Shop Mix?

Are You Clueless when it Comes to Building Repair Work and Diverse Shop Mix? Whether you realize it or not, Fixed Operations is your long-term growth engine and key to your ability to remain in business. 

I was visiting a rural Honda dealership the other day speaking with the service manager. We were talking about technologies in the service department and the expense and opportunity that each technology represents. He was very reluctant to look at new technologies regarding the laser measurement of tires and their impact on dealership profitability. He had a tough time seeing the benefit of doubling tire sales, doubling Alignment sales and increasing Brake work by 50% (which would have produced $12k in labor sales alone) because of a $2,500 monthly cost of new technology. He was caught up in the fact that his tires only had a $10 mark-up. This service manager was responsible for a shop that had four service advisors and wrote between 40-50 Repair Orders daily. He said, “What I really want to do is a lot more Repair work (Hello! Opportunity staring you in the face!). I need that type of work in the shop.” At that point, he ended the conversation and we left the dealership.

Well, the fact of the matter is that every service department in the country wants the very same thing as that service manager wanted. That’s the gravy work! It’s also the reason that we have A Techs and a disproportional amount of A Techs in our shops.

The switch in the service department from Repair to Maintenance plus a very large increase in Recall Campaigns has significantly changed your ability to continue to perform at high levels.

Mostly, this has been a complete switch in business mix as a result of better-made cars, trucks and SUVs and a very aggressive stance by NHTSA on Recalls. Just a decade ago, the average dealer service department, when it came to Customer Pay (CP) Repair Order mix, was 75% Repair to 25% Maintenance. Today, we are facing a complete flip-flop to 75% Maintenance to just 25% Repair work. Yet many dealers are not prepared for this change in business and the impact it has on their Fixed Operations. Couple that with Recall Campaigns that quite frankly don’t pay enough time or parts mark-up and you have the perfect storm leading to flat RO growth and negative RO profitability trends.

Folks, this scenario is not going away and it requires an entirely new paradigm shift in service management thinking, processes, systems and procedures.

Gone are the days when you can afford to have A Techs performing basic Repair work and simple Maintenance work. In order to maximize tech productivity and profitability (i.e.: their ability to make time by turning more hours efficiently divided by their rate of pay for each category of work). And, teams led by A Techs are a sham as the A Tech in just about every instance I have ever seen scrapes the gravy for himself leaving the B and C Techs to deal with diagnosis, drive-ability and other work that they cannot turn quickly and efficiently.

1.    Change Your Tech Ratios. There was a day when you wanted a shop full of A Techs. Those days are gone. I believe your mix should be something similar to this: 20% A Techs, 40% B Techs, 40% C Techs (and most of the C Techs should be hourly personnel if they are performing maintenance work). This substantially lowers your Cost-of-Sales (COS) for Maintenance Work, Warranty Work, Recall Campaigns and Competitive Maintenance work. Train the B Techs to do all types of Warranty and Recall work. The techs that show proficiency by category that can turn time are the techs that the work should be directed for production. C Techs should become your Maintenance ninjas becoming very proficient at turning time on Multi-Point Inspections (for Upsell generation) and Scheduled Maintenance Items. Your A Techs should then be the Repair workhorses doing the more skilled labor.

2.    Don’t Get Caught Up in Percentages Only. If you want to grow, you have to be willing to think differently. In discussion after discussion with many service managers and fixed operations directors, these high-level managers tend to get caught up in their gross profitability percentages by parts and labor looking at the entire shop. If I ask specific questions about their percentages broken down by category of tech performing work that is in their wheelhouse of efficiency, the conversation usually ends abruptly because they do not have the data (they haven’t thought about tracking it this way! Hint: that’s one paradigm shift!). Additionally, competitive maintenance item parts are grouped in with the entire parts mix without the realization that you must discount maintenance items in order for customers to want to bring their vehicle to you when they need the gravy-train of Repair work. Think differently and get different results. If you change the way to look at things, the things you look at change!

3.    Get Competitive…You Have to be Profitable Even on Discounted Oil Changes. And, by the way, you WANT this business! When was the last time you comparatively shopped the Independent Repair Shops in your PMA? It should happen every three to six months! And, when you do this comparative shopping, post the results on your website and in your service write-up area for the world to see…along with your prices for the same competitive items! You can generally get a complete list of the independents in your PMA from your OEM or through an Urban Science report. At a minimum, you should shop all of the “chain” Tire Stores, Oil Change Stores, Full-Service Repair Shops, Large Independent Shops, Walmart, Costco and Sam’s that are in your trade area. Shop basic services such as: Brake Pad Replacement (find out if they include Turning the Rotors), Alignments, Tire Rotations, Oil Changes (both Mineral and Synthetic), Wiper Inserts, Battery Replacement (do they charge to install), Tire Mounting and Balance, etc. If you want to grow, you have to be competitive. 

4.    It’s ABOUT TOTAL GROSS Profit! The true measurement in your fixed operations is specifically whether or not you are growing your TOTAL GROSS PROFIT when you look at Parts Sales and Service Labor Sales. If Total Gross Profit is growing, then you will be in business tomorrow and hopefully many years from now and better prepared for the next vehicle sales slowdown that will inevitably come about! You have to keep gaining on Fixed Absorption (or Fixed Overhead Coverage) which is the percentage of total dealership expense that the fixed operations departments gross profit covers. 100% coverage means that you don’t have to sell any cars to be profitable. This should be your goal and you must have this percentage measured every month as a KPI (Key Performance Indicator). One other note on Fixed Absorption: Pay big bonuses to your key people to get to this number!

5.    The Recall Campaign Opportunity You Are Currently Missing. With all of the Recalls that just about every manufacturer has (or will have), this is a tremendous opportunity to gain New Customers. Thanks to OEMs that ignored many problems for many years, Recalls are no longer limited to late model vehicles. In other words, they are now going back a decade or more because cars are made better to last longer. These are typically customers that do not have their car serviced at a franchised dealer but rather a local repair shop. Here is the challenge and training opportunity you will have with these older cars: don’t scare them off with a laundry list of repair items that are generated by a multi-point inspection (MPI). You must train your service advisors to act as a consultant. There is a reason these new customers drive an older, used car and it all centers around affordability and limited amounts of cash/credit. Carefully, share the results of the MPI with the new customer and prioritize the items that need repair. Always start with the items that are in the Green category (meaning these items do not require any attentions and congratulate them for maintaining their vehicle!). Next go to the yellow category (which are items that need attention sometime in the future) and merely show them that they will have to budget and deal with these repairs down the road (and by-the-way, we are super competitive on these items with a guarantee of all repairs for 12 months or 12,000 miles, etc.). Now consultatively show the new customer the items in Red that require immediate attention. Point out the safety items first and foremost that need repair and offer to do perform the work at a discounted rate of repair. You want this business and you want this customer. Get competitive and get the business! Too many dealers will scare these new customers off to the shade-tree mechanic who will do the work needed at a substantially lower cost basis and these new customers will never return to you for any work…the gravy work you want!

6.    Upsell, Upsell, Upsell…While Being Smart About It! See all of the above and re-read them. Share this with you fixed operations team. 

I sincerely hope you succeed and are able to grow your fixed operations. To your success and new thinking!