The Art of Service Management: Seven essential measurements that dealership leaders need to know about service department performance

Transcription

1 The Art of Service Management: Seven essential measurements that dealership leaders need to know about service department performance How should dealers, general managers, controllers and fixed operations managers measure the success of their parts and service departments? There are probably two dozen different measurements for fixed operations department effectiveness including Return on Investment and sales or gross profit-per-employee. Fixed operations expert Rob Campbell of the Mironov Group in Edison, New Jersey, recently presented a workshop in which he described the Seven Essential Measurements that he used when evaluating dealership service performance. (The Seven Essentials were part of a larger presentation on The Art of Service Management How to combine the Art of Management with the Science of Automotive Technology.) Effective Labor Rate First up in Rob s Seven Essentials was maximizing the shop s Effective Labor Rate (ELR). ELR is the low hanging fruit for improving service profits. It is the easiest thing to increase, but how do you accomplish the increases in an era of price competition and aggressive discounting/coupons? While Rob didn t spend much time on ways to increase ELR (there are several DealersEdge workshop recordings dealing with that subject), he did emphasize that managers need to know what is in their ELR reports and why a general manager or controller might not be getting the true picture. Consider the difference between a dealership s management reports and what the service manager knows to be the reality of the transactions from which they are calculated. For instance, let s say we have two service advisors working side by side. One typically writes up a customer s request for a LOF and then up-sells the customer on air filters, etc. The second service advisor has a different set of customers. His customers typically have a repair problem that needs to be addressed like a blown gasket. Each advisor presents a repair estimate, the customer accepts it and the work is completed. Which advisor has done a better job? MHJ2-Rob Campbell - The Art of Service Management 2014 DealersEdge All rights reserved. No part of this publication may be used or reproduced in any manner without written permission.

2 For a general manager looking only at the ELR (Effective Labor Rate) figures, the second advisor seems to be a star. Yet it was the first advisor who actually sold some additional services beyond the customer s primary request. There is often a difference between accounting reports and reality. Senior managers typically look at the management reports, while the service manager knows what is actually happening behind the reports. Service managers need to be able to explain the reality to senior managers. Where do most of these differences occur? Rob pointed to three areas: timing difference between accounting the service cashiers; methods of accounting for discounts and coupons; and unapplied time. Rob went into detail on the discounts and coupons issue. He showed a dealership report that indicated the service department s advertising was 10% of the gross profit. That did not look right and Rob asked to see the store s journal detail for the advertising. It turned out that essentially all of the advertising expense was actually discounts and coupons for various areas of service. Many would say that this is better to be accounted for as a cost of sale, thereby reducing the store s gross profit and its ELR. But that s not the important issue. Knowing and explaining the difference is where everyone can get on the same page. Sublets and unapplied time can also throw off the ELR figures. For instance, in the example Rob provided, one of his clients was reporting no unapplied time. Rob knew that wasn t right, so he had to dig into the other accounting figures to find out where the unapplied labor was actually being posted and then make adjustments to gross profit. Gross profits The second most important area Rob looks at is Gross Profit. Here there are two considerations: the impact of factory-directed discount pricing and the importance of focusing on actual dollars being generated instead of just focusing on the percentages. With the factory directed programs like $99.95 batteries, $29.95 oil changes, and $99.95 brake jobs, Rob admits that it is virtually impossible for a dealership to make any money on these items. There are, however, some sharp managers who have found ways to mitigate the pain. The better managers essentially accept what the manufacturer dictates and then figure out ways to add some extra revenue. For instance, on the $99.95 battery replacement, they look for and then suggest additional parts like terminals, cables and hold downs. On the $29.95 LOF, they try to up-sell the customer to synthetic oil. Brakes are the hardest to make any money on at the factory prices. But one service manager Rob works with will inform the customer about superior parts like ceramic aftermarket pads or crossdrilled pads. More importantly, though, is the concept that gross profits are often driven less by revenue considerations and more by the skill of your better technicians. This is where most dealers and their service managers focus on the wrong issue. Due to Twenty Group pressure or plain old fashioned thinking, says Rob, too many service managers and dealers look at the gross profit retention percentage as something sacred, not to be violated. Those same dealers and managers, typically, do damage to the service business by thinking that technicians get paid too much. Rob used the example of one of his clients to make the point. Two high-producing and high-paid technicians from a Chrysler dealership were being recruited to join a competing Chrysler store. The techs were 2 MHJ2 - Rob Campbell - The Art of Service Management

3 being offered $35/hour to move. The first dealer let them go because he did not want to match that pay level. After the technicians made the move the first dealership found its service revenue dropping because the remaining techs simply could not perform as well as the stars that moved on. The point being that dealerships pay the bills with dollars, not percentages. The first dealer looked only at the 75% gross profit retention percentage. The second dealer figured he could live with a lower 68% gross retention, if it meant it helped generate more revenue and gross profit dollars. Pay rate vs. flat rate Gross profit is sometimes about controlling the cost of sales. Those $35/hr techs might not look so expensive if the service manager had adjusted his labor times to reflect reality. Rob said that he still sees dealers with overly generous labor times for some repair work. He says that management needs to have some straight talk with the technicians to make it clear that those labor times are not realistic. The PAY rate may be $35 but if the FLAT rate is reduced to something more reasonable, then it should work out. Quick service lane problems Many dealers have tried the Quick Lube business but relatively few have really demonstrated success. That s a shame, says Rob, since some 60% to 65% of dealership customers come to your Service Department for Quick Lane services. Yet dealers assign their least experienced, lowest paid, least competent employees to this job. The Number One reason that Quick Service Lane efforts fail, believes Rob, is that the dealership fails to follow the program as written. They start taking short cuts and fail to follow the complete process. What Works Best in Quick Service Just like the entire dealership, it is all people-driven! You need a Quick Service Lane Manager - could be a lead tech or advisor They must be comfortable talking with the customer They must Quality Control the Multi-Point Inspection (MPI) Process There must be a set and followed plan for the write-up as well as the presentation of the MPI recommendations Or else it will all fail! To check Quick Lane process compliance, Rob always reviews the decline work logs. If there is a record of declined operations at least you know an MPI presentation was made. No record of acceptance or declining indicates that the service advisor isn t even trying to follow the process. And remember, it is these decline operations records that should provide the basis for future service marketing efforts. What works Dealership service, especially quick service, is a people business, notes Rob. That s is where the Art of Service Management fits in. The quick service lane must have a solid lane manager. This can be a service advisor or a lead technician but it must be someone who understands the people nature of the business. The lane manager should be comfortable talking with customers especially when she or he reviews the MPI reports. The manager has to be a mentor to the technicians to get them to see the importance of the process and that they all will benefit from a complete and thorough MPI process. MHJ2 - Rob Campbell - The Art of Service Management 3

4 The service department has to have a game plan for success. That includes a special quick service write-up process and method for making the MPI presentations to customers. There must be simple menus that are cued by the mileage on the customer s vehicle. And most importantly, there must be accountability for following and sticking to the whole process. Ifnot, it is doomed to failure. The potential Dealers who think that the $29.95 for a LOF is all there is to Quick Lane Service are directed to a recent survey by NOLN ( That s the National Oil and Lube Association for aftermarket quick service shops. According to NOLN, the average repair order value by its members in 2013 was $ That means that they are selling a lot more than $29.95 LOFs. The average vehicle is in the bay for 17.4 minutes. So that means they can turn the bay over 3 times an hour yielding an average of over $200/hour in parts and labor sales for each bay. That s impressive service bay productivity! These aftermarket guys are adept at getting customer s (97%) and cell phone numbers (79%). The average interval between LOFs for NOLN members was 4597 miles. On the other hand, dealership staff will often say these are not our customers. The average vehicle coming through a NOLN member s shop is 9.5 years old with 83,000 miles on it. They should be your customers. Managers in these aftermarket outlets have been on the job for an average of 8.3 years and the techs have been there for an average of 3.8 years. Following their lead might not be a bad idea. What are you selling? What s selling? or what are you making money on? are two good questions for senior managers to ask their service managers. The fact is, most service managers don t really know. It is not something that they look at regularly. But they should. Rob recommends creating a report in Excel that breaks down exactly where the sales are coming from. He tracks the labor operations on repair orders and looks at which ones produce the most sales volume and also which ones produce the most gross profit. It s a helpful exercise to go through, but one which most service managers do not employ. Rob suggests pulling information from the DMS into Excel. If the service manager doesn t know how to do this, try some of the online freelance sites (elance.com or Guru.com for instance), or maybe look for a local college student via Craig s List. Another possibility is to use the web chat feature that most DMS have. If approached right, the DMS rep might help produce the report for you. The goal here is to see which services are most beneficial for the dealership and then create marketing programs to attract more of that type of work. There really aren t many growth opportunities for dealership service, so managers have to be creative and aggressive. Know where your CSI comes from Rob isn t talking about the factory customer satisfaction surveys. He wants to know if your customers really like you. Again, this is a people business. 4 MHJ2 - Rob Campbell - The Art of Service Management

5 CSI Essentials: Remember, this battle is always won or lost by your front line employees. If you hire really good people, they can produce the greatest CSI success. But the best process cannot overcome bad people. And, mediocre people that are not being coached by conscientious managers will never get you the results you desire. The battle for customer satisfaction will always be won or lost on the front lines by your customer-facing employees. Good employees will overcome almost any obstacle but the best systems and equipment cannot overcome bad employees. Mediocre people will never lift the dealership to where it needs to be unless they are being trained and coached by good leaders. Rob also sees the better dealerships shying away from hiring the journeyman re-tread service advisors. These are the folks who have worked at lots of dealerships and been around for years. They know how to do the job, but not very well and not very enthusiastically. Instead, these dealerships look for fresh faces with the right personality attributes that can be trained to be good service advisors. Market smartly Service department marketing is truly an art and most dealerships are not very good at it. The OEM advertising efforts have gotten stale and repetitive. Rob does not suggest that you rely on them for any meaningful marketing success. Digital and social marketing is better but is also tricky. Rob sees too many messages being sent and often these messages are mixed and jumbled. Prices seem to shift from one ad to another. Message frequency is a problem. Customers simply get too many online marketing pitches and tend to ignore all of them. His advice is to use online and marketing techniques, but do not rely on them. Service clinics are getting a little tired, but Rob has seen some dealerships gain traction by having technicians use photographs of actual customer car problems as illustrations. For some reason, customers react better to the photos. Loyalty rewards are a mixed bag. They work for some dealers and are miserable flops at other stores. For an example of what works, check out Keystone Volvo s website ( (Oct 2014) Suspension work and wheel alignments are a great marketing opportunity in Rob s opinion. Cars are getting much better but roads are getting worse. Alignments are getting easier to sell. Rob especially likes the idea of lifetime alignments. For $149 the customer can come back as long as he owns the vehicle to have the alignment re-checked and adjusted if needed. It gives the customer a good incentive to visit the dealership for all services. Value-Pak inserts, for some reason, are showing excellent results for some dealers. They are inexpensive and the response rates are relatively high. MHJ2 - Rob Campbell - The Art of Service Management 5

6 Nothing is sacred When it comes to expense control, nothing is sacred. Shoot for 20% to 25% net-to-gross. Here are some of Rob s recommendations for where service expenses should fall as a percentage of the gross profit. The lower figure applies to domestic and most imports. The higher figures apply to the hi-line franchises: Advertising 4% to 6% Training 4% to 6% Personnel 36% to 43% Policy 2% or less And one final recommendation: The most successful service operations that Rob sees these days have shifted to salaried service advisors. Relieving the pressure to sell and up-sell makes a big difference in CSI. 6 MHJ2 - Rob Campbell - The Art of Service Management