It’s a number some dealerships reach easily, while others work hard and never quite get there: service absorption. You know it as the fixed operations gross profits that cover the expenses of not just fixed ops, but the WHOLE dealership.

Service absorption used to be the measure of a quite successful dealership. But there’s uncertainty in the industry. Steel and aluminum tariffs, as well as proposed foreign auto tariffs, are going to have a serious impact on new vehicle sales, should they last very long.

That doesn’t even take into consideration the previous sales forecasts. Economists and industry professionals expected new car sales in 2018 to slow down anyway – the tariffs are just going to compound it.

You’re wondering how this applies to service absorption. If you aren’t at 100% service absorption already, will it matter when the market soon takes a dive?

It’s Never Too Late

The fact is, no matter what happens in the economy, your service department will never NEED to cover 100% of the whole dealership’s expenses to pay the bills. As long as there are still cars driving off the lot, gross profit on the variable side will be there. But no dealer is satisfied to just stay afloat, even if it’s short-term. There net profit, whether that’s from the sales floor or the fixed ops departments.

With storm clouds on the horizon, turn your attention to service absorption. Just a few changes can help you get closer to a 100% service absorption rate, easing the pressure on the whole store.

Audit Expenses

Service shop supplies, uniforms, miscellaneous fasteners – any expenses that you incur in the service department take away from the net profit. Dollar for dollar, if you can trim your expenses, you edge closer to 100% service absorption.

Call your suppliers and put them on notice. Give them an opportunity to revise their pricing while you request quotes from other suppliers. With your suppliers, it’s good to have a working relationship. But when it comes to business, it boils down to dollars and cents. You’ll be surprised how quickly you’ve found hundreds or thousands of dollars in savings.

Perform a Labor Rate Analysis

If you’re running a tight ship with very little waste and you’re still coming up short on service absorption, it could be time to make a pricing change. Perform a labor rate analysis, comparing your rates with your competitors.

Since the service department is less about pricing and more about relationships, modest increases where you are lower than the competition should be met with very little resistance. Plus, that extra income goes straight to the net – there are no extra expenses.

Attract More Service Customers

Perhaps the most important thing you can do – if you have the bandwidth in your shop – is attracting new service customers. Use any media you can to create new relationships with potential customers around you.

The benefits are pretty obvious – you add gross profit with every extra work order you write plus you’re increasing your base of potential new car customers too.

You might not get to 100% service absorption – your dealership’s financial structure just might not work that way, or your shop might not be big enough to do it. But if the automotive landscape tightens up like it looks like it will, you’ll need to do everything you can to keep your dealership profitable.