One of the most important performance metrics dealers should track is their fixed coverage, or service absorption.
That represents on a percentage level how much back-shop operations cover overall dealership overhead. A hundred percent would be great. More than that would be awesome.
Unfortunately, this is an area where we continue to see a decrease. Year-to-date, it is 50%, according to the National Automobile Dealers Assn.
Yes, I understand that in many cases the recent costs of manufacturer-dictated facility improvement programs have negatively affected this. But that is only part of it.
I could take all of this space to list the reasons dealers are citing for this negative trend in service absorption.
But unless you are confident your new and used operation, including the finance and insurance department, will generate enough gross to offset this lost net profit, take firm actions to reverse the trend in your fixed operations.
I often ask how dealers can ignore or accept this decline in a department that provides the highest gross profit of anything sold in your dealership.
One analogy: When we sell a new or used vehicle, we turn a customer over to F&I in hopes of selling products. The F&I percentage closing rates for most dealers is between the high 60s and low 70s.
Now, in service when we sell labor, what else is sold, almost without exception? Parts. In most cases, they generate an additional 35% to 40% gross profit.
And then there’s the collision-repair business if you’re in it. Granted, the gross-profit percentages are lower on both parts and labor in the body-shop business. But the gross profit still contributes to raising the fixed coverage percentage.
If dealers ran their fixed operations using the same practices they use in their variable operations, they would see an increase in business.
In the sales departments, you strive to set appointments, follow up on missed appointments and monitor the sales and gross results of salespeople and management.
But I can’t tell you how many service managers do not hold daily “save-a-deal-meetings” or personally follow up with customers who failed to keep appointments. We can grow our fixed-operations traffic, sales and profit if we follow the best practices of variable sales operation.
A last comment regarding your fixed-operations business. It has to do with marketing.
Most dealers distribute a monthly mailer to their customer base, but what other actions do you take? How aggressively do you use e-commerce in your service department?
Sure, there is a spot on your website that provides service hours and general information, but are there monthly specials and other seasonal offerings?
If I use the Internet to search, say, “Toyota vehicle service” in you city, how near the top of the results list does your dealership appear?
If you coach while demanding performance and accountability from personnel, you will reverse the negative trend we are seeing today in our fixed operations.
In closing, I want to thank each of you for your continuing support and wish each of you a happy and safe holiday season and a very successful year.
Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com