Apr
15

Best Practices for Building Profits in Tough Times

With new vehicle sales down, there’s still a wealth of opportunity for fixed operations directors and service managers to really grow business.

While almost all industry experts are calling for a slow and lengthy market rebound there is no doubt that vehicle sales will continue to be substantially lower than they’ve been in recent years.  The result in most markets will be fewer new units in operation and will likely correspond to fewer new customers in dealership service lanes.  The full impact on service sales is due to be felt over the next 36 to 48 months.  But not all is doom and gloom. These challenging times do offer an excellent opportunity to shift some focus from acquiring new customers to investing in those customers who do come to your dealership to purchase or to have their vehicle serviced.

That’s exactly what we are seeing in fixed operations departments where managers have fully embraced dealership directives to grow sales and increase profitability.  For many the effort started this past January, when dealers and management teams set 2011 goals to increase customer pay work through retention efforts at their stores. Many other fixed operations departments identified the opportunity last year and launched their specific initiatives to renew, engage and protect more customers in early 2010.

Dealers that have specific, identifiable retention initiatives in place today are in a far better position to overcome the effects of lower vehicle sales in the upcoming years. The following is a run-down of the best practices observed from the dealerships that can only be described as “over achievers” when it comes to growing and sustaining their fixed operations sales and profitability through their owner retention efforts:

Understand the difference between CRM and Owner Retention:  Many dealers view CRM and owner retention as one-and-the-same.  While many of today’s CRM systems do offer components that will communicate with your customer, they do little to build on the emotional relationship that drives existing customers back. CRM can best be described as a dealer centric marketing tool while retention programs are completely customer centric, employ different messaging and provide more tangible results. In short, owner retention programs have the ability to affect a customer’s buying psyche.

Build relationships early but remember it’s the fourth and fifth service visits that are the most valuable:  Many dealerships schedule an initial service visit for new vehicle buyers as part of their delivery process. The idea is to maximize the “honeymoon period” that occurs after a vehicle sale. The first few service visits will likely be minimal routine maintenance, with little added out-of-pocket expense for customers. An effective retention strategy must employ a plan for securing the more profitable third, fourth and fifth service visits. Standard service reminders may generate limited response but when paired with a simple customer rewards program or soft incentive, the results are positively surprising. And just as important, is to establish rapport, confidence and trust with customers, as these are the required foundations for a long-lasting customer focused relationship.

Don’t forget your pre-owned vehicle customers: Dealers with high owner retention rates all had programs in place to entice their pre-owned vehicle purchasers back, regardless of the make. Most had some type of dealer captive maintenance package either purchased at the time of vehicle sale or included with the purchase of the vehicle.  For example, a dealership that sells 75 pre-owned units per month could generate an additional 1,170 service visits (annually) if they engaged and attracted back 65% of the pre-owned vehicle buyers. And when compared to a new vehicle sale, the pre-owned vehicle will be ready much sooner for the high gross service items like brakes, tires and transmission services.

Make the most of vehicle and state mandated inspections: Some industry experts say the percentage of vehicle inspections that actually occur when customers visit a dealership service department is roughly half of what fixed operations directors and service directors think it is. That’s likely a stretch, but the vehicle inspection is a lot like the “ups log” in sales departments: It’s work that’s supposed to get done, but often doesn’t. In stores where the fixed operations directors and managers track this important statistic regularly, you will see 15 to 20 percent gains in average customer pay work. The best-performers see 90 percent-plus completion rates—oversight that often translates to more technician recommendations on repair orders (ROs) and more selling opportunities for advisors.

Advise and provide guidance to your customers: What percent of service advisors actively provide advice or guidance to a retail customer? Sure they can sell, but would they sell more if they took a counseling style of approach? It absolutely takes more time for advisors to explain recommendations to a customer in a way that informs, rather than pushes or cajoles. But it also engages your customer and fosters trust which, as we mentioned earlier, are both foundational elements of good customer retention.

Follow up on “declined” work: When customers say “no” to a specific work recommendation, it’s not rejection…it’s future opportunity! Many dealers are assigning labor op codes to specific declined services. The declined labor op codes are then easily tracked for each customer and can provide the dealership with an easy and effective way to remarket these declined services to a customer in the future. A number of automotive retention programs currently offer declined services marketing capabilities.

Manage your email communications and customer data: More is not always better. Email that is. While “email blasts” seem to be the current craze, they can actually do more harm than good if not utilized properly. To successfully implement email marketing you must use customer database segmentation. It’s a must, no question about it. Being able to “slice and dice” your database so that you can target specific segments of customers will provide you with significantly higher response rates and, most importantly, it will protect your communications from being viewed as spam. Relevance and engagement are critical. At least once a quarter consider sending out non-solicitation communication such as driving tips or some type of informational piece. 

Make it easy and welcoming to do business with you: Fixed operations managers should create an environment like the best hotel chains—customers love it when they get the sense they’re recognized and appreciated. Second and third shifts at successful service departments are becoming more common. The rationale: Be able to provide service when it’s most convenient for customers. Successful stores do this in increments, adding evening and Saturday hours (in some cases only offering select services) to convey a greater degree of convenience.

Look for loyalty-building opportunities: Beyond the loyalty that well-managed customer relationships can produce, successful fixed operations departments are also benefiting from programs that reward customers for their ongoing patronage at their dealerships. These programs often function like the “points” that credit card customers accrue and use for flight/vacation packages, purchase discounts at partner retailers, etc. The main difference being: the benefits that customers earn are only good for products and services offered by your dealership. They are called captive loyalty programs and customers are joining them at high rates (LoyaltyTrac reports over 6 million customers have voluntarily enrolled). For fixed operations departments, they lead to higher visit frequency and greater overall customer spend rates.

A recent J.D. Power & Associates report suggests that fixed operations mangers who don’t step up efforts to engender customer loyalty and retention will see revenue declines up to 25 percent—due in part to the lower units in operation scenario discussed earlier. These best practices are the elemental parts of the broader plans successful dealerships have put in place to address the growing pressures on their fixed operations profitability. Those dealerships that embrace these best practices and implement these processes will stand as winners—no matter what happens in the front-end of your stores.

What practices have helped your store build profits in the last few years?

If your store has seen a significant increase in service lane ROs, have you successfully implemented practices similar to those discussed above? How have they worked for you? What worked best?

What types of incentives have you offered in your F&I department that have been the most successful? What about in your service department?

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