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Jason Unrau

Jason Unrau Freelance Contributor

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What Joblessness Means for Service Departments

We’re at the end of May 2020, and the jobless rate in the United States has just surpassed 40 million, or 14.7%. That’s the highest it has been for nearly a century. Americans are in a tough spot, financially, and the uncertainty going forward is a problem that’s almost as significant.

Despite the depressed economy, the retail auto sales business is beginning to make a recovery. New and pre-owned car sales have been restored across most of the states, and new car sales buoyed by aggressive incentives. And although service departments have been open throughout the pandemic for much of the country, joblessness is bound to command a dynamic change.

Unemployment Affects Frequency of Visits

Nationwide, labor rates at dealerships range from an average around $120 per hour to over $200 per hour. When a customer’s service reminder chimes at them as they collect unemployment checks, their internal dialog poses the question, “Can I afford to get my car serviced?”

Unquestionably, there will be a small but significant number of dealership service customers who delay their service visit or choose the low-cost oil change shop down the road rather than the service drive at their selling dealer. They simply can’t afford it – at least, they perceive the premium service option is unaffordable.

How do you combat it? It isn’t easy. To retain those customers as best as possible, a strategy might include lower door rates or a discount for those who can show proof of unemployment. It’s tricky to navigate because you don’t want to further humiliate the customer. It could be a sweeping rate change for a limited time also. Make sure to communicate it through social media and an email campaign, whatever you do.

Customers Keep Cars Longer

When the sentiment in the American economy is apprehensive, car owners tend to hang onto their vehicles longer. COO of CarBrain, Marcin Ladowski, says, “In the beginning stages of reopening the economy, we’ve seen that it’s the affluent car owners that are still buying cars. People who don’t know when their next check is coming have been holding back on a replacement, even if they desperately need a new car.

“What we’re going to find is an American car fleet that’s aging, costing more to service, and in some cases, unsafe to be on the road.”

While it might seem counter-intuitive, service departments need customers to restart the vehicle lifecycle every five to eight years for a profitable department. Encouraging customers with aging vehicles to explore incentives on a new purchase might not help today’s repair bill, but it will help future sustainability.

Lower Value Fleet

For service departments, it can be challenging to achieve targets with aging cars. Owners tend to be frugal, limping their car along and willing to live with annoying conditions rather than fix them. Lower dollars per RO, lower overall GP, and an increase in declined services are possible.

At the service desk, customers should be helped with their older, lower-value cars just like any other customer when there’s no intention to switch cars. Offer services that help ensure longevity and reliability, products that enhance pride of ownership like accessories and detailing, and consider a high-mileage discount as a loyalty program.

John Brennan

How do they justify $120 to over $200 an hour shop rates?NOBODY MORE THAN DOUBLES THE COST OF ANYTHING ESPECIALLY LABOR!This is the current average gross profit margin for any skilled trade or professional service(On the trailing twelve months basis gross margin in 4 Q 2019 grew to 38.67 %.) That 80% over cost.These shops are shooting for 90% gross margins on service labor now 900% over cost.Everyone else in the community is held to these competitive margins but these car dealers are all colluding to force these margins through the roof which is criminal.The FTC and DOJ should bust them for every anti-trust violation in the book!

"The competitive process only works, however, when competitors set prices honestly and independently. When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice."

 https://www.justice.gov/atr/price-fixing-bid-rigging-and-market-allocation-schemes

John Brennan

Here they are trying to charge 90% gross margins and crying technician shortages as an organization.Any one of these individual dealers could raise wages to fill these positions and lower shop rates to increase volume but they have obviously made agreements to hold technicians below their values and force their gross margins higher and higher.Unthinkable!

https://blog.nada.org/2018/08/03/nada-foundation-meets-with-white-house-to-discuss-technician-shortage/

John Brennan

Some insulation contractors were recently busted using burner phones and encrypted messaging apps just to rig 10% on pipe insulation in the Connecticut area,these criminals have websites devoted to fix-ops and are emailing spreadsheets to anyone that asks.This article was posted 8 years ago and they are shooting for 90% now.They have never deviated on the cheap fake Chinese parts margins much but are continually attacking the labor margins."You should set your minimum goals to achieve 70 percent for labor and 40 percent for parts."What are information sharing programs and accounting methods?"Dealings among competitors that violate the law would still violate the law even if they were done through a trade association. For instance, it is illegal to use a trade association to control or suggest prices of members. It is illegal to use information-sharing programs, or standardized contracts, operating hours, accounting, safety codes, or transportation methods, as a disguised means of fixing prices."

https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/dealings-competitors/spotlight-trade

John Brennan

"You should set your minimum goals to achieve 70 percent for labor and 40 percent for parts."

https://www.autodealertodaymagazine.com/310039/service-and-parts-profitability

John Brennan

The dealers are DEAD!!

"If the offense was committed on or after June 22, 2004, the maximum Sherman Act fine is $100 million for corporations and $1 million for individuals, and the maximum Sherman Act jail sentence is 10 years. Under some circumstances, the maximum potential fine may be increased above the Sherman Act maximums to twice the gain or loss involved. In addition, collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes, all of which the Antitrust Division prosecutes.

In addition to receiving a criminal sentence, a corporation or individual convicted of a Sherman Act violation may be ordered to make restitution to the victims for all overcharges. Victims of bid-rigging and price-fixing conspiracies also may seek civil recovery of up to three times the amount of damages suffered."

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