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Jared Hamilton
From: Jared Hamilton
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Richard Holland

Richard Holland Managing Director

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FCA US Dealers: Service Revenue Just Got A Lot More Important

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FCA US CEO, Sergio Marchionne, recently announced plans to reduce the profit on new cars sold within the FCA brands by increasing the invoice prices, while keeping the MSRP the same. This will result in less potential profit for its dealers. The move, as reported by Automotive News, is FCA's attempt to increase its profitability. This, of course, will probably not result in standing ovations from dealers. In today’s ultra-competitive world of transparency and Internet shopping, dealers are already fighting the race to the bottom and depend on aftermarket, F&I products and finance reserves, just to seek out a profitable sale.

 

Sales managers can try tactics such as holding more gross, and not discounting the vehicles as much. But the reality is that consumers have too many resources available to get persuaded into paying more, or taking less on their trade. Transparency in the sales process is only going to become more available – in fact it's going to become the norm. Some dealer groups are already trying to take the entire process online. How hard will it be to undervalue a trade or mark up an interest rate if the consumer can simply open another web browser and look the information up online?

 

Perhaps some are counting on the walk-in traffic that may not have conducted any research prior to visiting. Sorry to tell you this, but showrooming is becoming more prevalent. Your customers are shopping the competition on their mobile devices – right from your lot. There are even services that allow your competitors to target your customers with ads and offers while they're standing on your lot. Pricing transparency isn't going anywhere. Technology advancements will guarantee that.

 

Since margins and profits in sales are declining; due to consumer use of pricing resources and OEMs reducing margins; dealers will have to discover more profit in other areas of their store. One of the easiest departments to do this with is, of course, the one already relied on for revenue - service.

 

It would be a wise move to truly analyze whether you are maximizing profit potential in your service department. There are some really good tools and technology that create more efficient processes, keep your service bays full and avoid idle time for technicians. It's not necessary to spend millions on service bay expansions or new buildings to increase service revenue. Just consider some changes and perhaps stop doing things "the way we've always done it." Approach your operations with a fresh set of eyes. I guarantee that there are opportunities waiting to be discovered...

 

You just have to know where to look. 

Denim Simkins
Richard - 100% correct - the time is now to have all GM's and DP's turn their head and dust off the Service and Parts department. Granted the fixed ops department only contributes to 10 - 15% of the sales volume but that turns into 50% of the profit. Great topic.
Richard Holland
Absolutely, Denim! There are plenty of ways to increase service department revenue without breaking the bank - technology, change in processes, analyzing what's already happening, being more efficient with service scheduling to maximize the productivity of your shop and technicians... the list goes on.
Gregory Noonan
Denim and Richard, We addressed some of this at Insight15 conference in Orlando and much of it at the Chrysler show this October at Disney. More to come from us again soon. I'll say that the term Absorption Rate has more to do with the amount of profit the Variable side absorbs from the dealership than it does how much cost Customer Service absorbs of the fixed costs. Also, I'd sure like to get rid of the industry term, Fixed Ops. It's a silly definition and as long as it is used it will continue to falsely define the Customer Service department. Help me eradicate that term. Congratulations, Richard, on the DME purchase… a huge step in the direction I invision all companies going over the next 10 years..

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