Car dealer bliss comes when the back shop reaches a 100% absorption rate.
That means service-operation profits are high enough to cover the costs of all the other departments at the dealership. An absorption rate past 100%? That would be dealer nirvana.
Few dealers hit the magical 100 mark, but some come close, such as Stephen Wade, vice chairman of the National Automobile Dealers Assn.
A dealer in St. George, UT, he bought a dealership in California because he was attracted to its 85% absorption rate. “We're working hard on absorption,” he tells Ward's.
When new-car sales dropped in 2008 and plummeted in 2009, dealers cranked up their fixed operations to offset the showroom revenue declines.
“Parts and service are critical to dealer success,” Wade says. “Those are your constants.”
Ironically, he didn't consider them big deals when he became a dealer in 1971.
“If they had said back then, ‘You won't have a parts and service department,’ I would have said, ‘OK.’
“Today, the body shop, service department and parts department bring me home.”
Jerry Seiner says his goal is 100% absorption for his three dealership facilities in metro Salt Lake City. “Right now, we are at 80%
He's mapped out a strategy to hit the 100 mark, starting with keeping his service departments open until midnight Monday-Friday and allowing customers to book service appointments online.
Seiner works at turning showroom customers into service customers. “Customer retention means getting people back in the store and letting them know we have competitive pricing for our service work.”
He adds: “It is very difficult to have good vehicle sales and not have good service sales, and vice versa.”
His organization touts the fact that, unlike many independent shops, it has the most advanced equipment to service modern cars.
“We also focus a lot on tires, which we display,” Seiner says. “Dealerships are great places to sell tires to customers who are already there for service.”
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