In the past few weeks, we’ve covered topics like treating service customers and sales customers similarly, the supporting role service team members play in converting sales, and interdepartmental relationships. What hasn’t been discussed plays a very direct role in vehicle sales, and it’s a hot button: labor rates!

It’s a hitch for both new and used car departments. As it related to new car sales, labor rates can impact the bottom dollar. New Vehicle Prep charges are virtually standard, so that’s a non-issue. There aren’t a lot of repairs for new car inventory that’s charged to the unit, that’s not worth our time. But there are accessory sales (at least there should be).

Then, in the used car department, it’s a whole other animal. Everything is up for debate, from the initial reconditioning inspection charges and certification repairs to the detailing and body repair charges. This is an area where the service department hits a home run, and the main reason service departments consider the sales department their biggest customer.

Between both the new and used car departments, I’ve seen the labor rates structured in different ways. Everyone seems to have their own formula for what ‘works’, but it’s not often both the service and sales teams are satisfied with how it functions. Here are a few structures I’ve noted in the past:

Accessory Sales

• On both new and used vehicles, labor is charged at about 60-70 percent of the door rate. It keeps accessory sales in-house but really isn’t a great deal for the service department. Because the rates are so low, selling accessories brings down the average dollars per RO, and often the hours per RO – both KPIs for service departments.
• Accessories are installed at the full door rate but at warranty times. That keeps the gross much higher but takes a big hit on the hours per RO. It could work if your CP volume is sufficient to minimize the effects.
• Accessories are installed by junior technicians that operate on an hourly, or straight time, basis. This hurts profits less because of the lower cost of labor, but still has negative effects on the dollars per and hours per RO.
• Charge full rate for everything. Service is happy but sales can’t seem to sell anything more than mudflaps.

Used Cars

Ah, the elephant in the room…

• Charge low rates for inspections, oil changes, and detailing. Then, when the inspection is complete, estimate all repairs and services at full bore. The result is often two-fold: higher-priced units on the used car lot that are more difficult to sell and lower profit, or more units going to auction, ending up on the car lot beside you, and being retailed for a hefty profit by your competition.
• Low cost inspections again. Then, used car inventory is separated into two groups based on a dollar threshold. More expensive used cars are charged full rates for everything while the lower-budget units are discounted 30 percent or so. Parts comes to the table as well, lowering their markup too. This helps get more units on the lot and seems to be a decent compromise. You might find the UCD tries to take advantage of the program, slipping higher-priced units into that pile to maximize profits.
• Like the above situation, there are two categories of used vehicles. Higher-priced units go through the program as usual, but lower-priced cars are sent to a shop down the street for low-budget repairs. Service departments hate this because it seems like the UCD is taking money from their pockets. In many cases, though, these units would be wholesaled instead of going through the dealership’s service department, simply because costs are too high in-house.

I understand that what works for one doesn’t necessarily work for another. The best part is I’m not going to tell you what to do. I’d like to hear what your store does, if it works, and why it works. Hopefully by sharing your method, other dealerships can find a structure that benefits both the service department and the sales department.