Ask any dealer, general manager, or sales manager how many cars they need to sell this month and they’ll immediately know the answer. No matter what day of the month it is, they’ll know where they are and what they need to do to hit the goal.
So, how many labor hours do you need to sell this month? How many hours do you have month to date? How many hours do you need per tech, per day to hit the goal? What would happen to gross if you were to sell just one more hour per tech per day?
Oh, and how’d you come up with the goal? One last question: What is the exact plan you have implemented to sell the needed hours?
If you are struggling with answering these questions, you are in good company. Earlier this year I had the privilege of attending a meeting of automotive professionals in Wichita, Kansas to learn from one of the smartest guys in the industry, Jim Phillips. It was two days of hard-hitting, no-nonsense training. Phillips, a consultant and trainer with Cox Automotive, presented Fixed Ops Essentials to the group and graciously gave me permission to write about his powerful takeaways.
The workshop attendees were some of the best and brightest in the industry and most of them had trouble pinning down exactly how many hours per month they needed to be profitable.
The reason service managers, general managers, and dealers struggle to know how many labor hours they need this month is because they may fail to see fixed ops as a business—specifically, a sales business.
Phillips cited statistics that showed used-car gross profits have dropped from 13.7% in 2011 to 11.7% in 2017. New-car gross has dropped from 4.5% in 2011 to 2.5% in 2017. This trend of increasingly compressed margins will continue for the foreseeable future. So, how do dealerships make up the loss? By looking to that faithful cash cow called fixed ops. Labor gross remains at a whopping 73%—and it’s not going down. Labor (read that as “time”) is your most profitable commodity, but it is also the most perishable. Whatever cars you don’t sell today will still be there tomorrow, whatever parts you don’t sell today will still be on the shelf tomorrow, but whatever time you don’t sell today will be lost forever.
That’s why Phillips says we have to help our techs be more productive and efficient—because time is too valuable (and profitable) to waste.
Phillips challenged the attendees to share their best practices to increase shop efficiency. Here are the takeaways:
Move cars waiting to be serviced closer to the building. If the tech is having to walk to the back of the lot to find a car, he’s wasting a lot of time.
Deliver parts to the techs instead of making them walk to and then wait at the back parts counter.
Sell maintenance services! Most maintenance services are 200% – 300% efficient. (The service flags an hour, but only takes 20 minutes to do).
Upgrade your equipment—make sure technicians have the latest electronics, computers, fluid exchange machines, and diagnostic tools.
Reward efficiency. Tie efficiency and productivity to the technicians’ pay plan.
Move fluids and oils to a centralized location.
Enhance digital communication to speed up the multi-point inspection information transfer between techs and advisors.
In short, minimize or eliminate any activity that takes the tech out of his service bay, away from the car. (When their hands aren’t on the car, they’re not making money and neither is the shop.)
Some of you may be thinking, “Hey, my techs aren’t that busy; they have the time.” If that’s true, then you have a different problem: the advisors aren’t selling enough time. Phillips explained that some shops are masters of processes, but lousy at selling. Therefore, it’s important to add a sales element and a sales incentive to the process.
Another best practice centers around creating a pay plan for advisors that encourages collaboration and teamwork, while still having a little friendly competition. How about this:
Pay advisors $5.00 for each hour they sell and $1.00 for each hour the shop does. Therefore, they make $6.00 for every hour they sell and $1.00 for every hour the other advisors sell.
Additionally, pay a $5.00 spiff bonus for each maintenance service sold and a monthly bonus when CSI goals are met.
Nothing kills momentum and moral faster than techs running out of work by 3:00 p.m. because the advisors aren’t selling enough—or advisors that stop selling because they fear that the techs can’t get the work out fast enough. There’s often lots of finger pointing, grumbling, and complaining at the monthly service meeting, but the solution is simple; sell the service and efficiently get it done!
Years ago, Phillips used to hear dealers say, “My service department is losing money, but hey, F&I is profitable…so we’re okay!” That’s stinking thinking, because today every department must be profitable!
Phillips offered three tips for increasing fixed ops profitability:
- Increase your margin (make more gross)
- Decrease expenses
- Sell more maintenance services
Therefore, if your margin is good and if your expenses are under control, then your advisors need to sell more maintenance services. If your margins are low, raise them…and sell more maintenance services. If your expenses are high, lower them…and sell more maintenance services. No matter what other steps you take, it is critical that your advisors sell maintenance services. You can’t save your way to prosperity; you must sell your way to success.
Despite the complexities of the automotive business and the constant pressure from customers and OEMs, if you are selling maintenance services, your revenue will increase.
Happy Thanksgiving! I hope you have time to relax, reflect, count your blessings, and enjoy your family and friends!