To grow profits in today’s automotive environment, many auto dealers are focusing on growing service department revenue. Achieving this goal presents a number of challenges, including:  

1) Declining new vehicle sales volumes

NADA predicts 2018 new-vehicle sales of 16.7 million units, down 2.3% from 2017. That’s not a huge decline, but new vehicle sales also face stiff competition from a glut of off-lease and used vehicles. Fewer new car sales means less future warranty work.  

2) Higher quality vehicles

Available work per unit is declining as quality improves, service intervals lengthen and work shifts from repair to replace. Dealers can no longer count on substantial warranty work and in-warranty customer pay business from new vehicle sales as a way to feed steady business to their service departments.  

3) Increased Competition

Independent aftermarket chains are entering a recession. Due to the recent spike in new vehicle sales, the volume of vehicles older than seven years and still in operation is declining.

This decline will continue until 2022, prompting chains to expand service offerings and launch aggressive marketing campaigns. Their prime target is customers with vehicles from four to six years old; the same customers that dealers like to target.

Dealers cannot afford to lose market share to independent chains. To maintain yield in this environment, dealers need to capture a greater percentage of their market service potential.

4) Shifting Customer Expectations

Today’s consumers expect a transparent and convenience-driven experience, which traditional dealer processes and systems are ill-equipped to deliver.

Your customers are baffled that they can track a pizza being made and delivered to

them, but must call your dealership several times to check on the status of their car, then wait to pay at a cashier.  

5) Lack of Service Growth Strategy

Growing service revenue doesn’t just happen. Growth requires the creation, execution and management of a strategic plan. Many dealers don’t have a strategic plan, unless you believe that doing more of the same counts as a plan.  

What was it someone once said about doing the same thing over and over again, but expecting different results?  

The good news is, it’s not all bad news. Our industry is exiting a period of unprecedented tailwinds that have created exciting opportunities for growth.

Since 2012, the combination of increased new vehicle sales and a 13 percent reduction in the number of auto dealerships has created the highest units-in-operation (UIO) to dealer ratio in history. 

To take advantage of this opportunity, you need to accomplish two things:

1. Increase service yield from current customers/UIO
2. Increase market share

Do you know what your dealership’s current revenue-per-UIO is? Do you know what you have to do to increase market share?

If you’re not sure, the first thing you should do is ditch the service absorption metric. I’ve written before how I believe that service absorption is a dangerous number and is an outdated metric for modern times. 

One major problem with this metric is that you can have 100 percent service absorption, yet still be losing market share. You can’t manage what you can’t measure.

Revenue per UIO allows you to measure both service yield and market share, so you can establish a baseline from which to grow.

How to Increase Service Yield

Most auto dealerships capture less than half the work needed on vehicles that enter their service lanes. To increase service yield, focus on providing complete vehicle care to your current customers. 

To do this you must identify, communicate and capture all service needs. This may require changes to your write-up, multi-point inspection (MPI) and service recommendation processes.  

Technologies such as mobile tablets can help, but incentives may need to be put in place so advisors and techs are encouraged to spend the appropriate amount of time with every customer. Additionally, data must be leveraged so your staff can easily identify recommended repairs.  

When customers arrive in the service lane, an advisor needs to check the following, every time:

• Is there an open recall?
• Are there declined services from last time?
• What are recommended services/repairs on a vehicle like yours? 

The last question is key to making upsells and capturing more service business. Also, prepare your customers for the next visit with a list of service recommendations for the next 10,000 miles.

How to Increase Market Share

Most dealers’ service marketing efforts utilize mail and email channels to remind customers about factory scheduled maintenance and select seasonal campaigns. Many conquest campaigns rely on “oil change” offers to bring new customers in.  

This marketing strategy performs significantly below potential impact. To drive more responses, an integrated marketing campaign must replace the “fire and forget” mentality. 

Omni-channel marketing leverages the following channels and delivers highly relevant offers to each customer: 

• Direct Mail
• Email
• Facebook/ Instagram
• Google/SEO
• Service PPC
• Display ads
• IP-based retargeting

With every customer interaction, data is collected and used to create a message or offer that drives the customer to the next stage. The customer is guided through needs notification to scheduling, to the appointment, to in-service notifications and post-service follow up.

This marketing strategy is designed to build relationships, instead of a one-and-done service experience. Creating processes and marketing programs that focus on the relationship, rather than the here and now, is a critical part of any service growth plan. 

One of the biggest marketing challenges is to capture the attention of your intended audience. We are all bombarded with hundreds of marketing messages every day, and to a great degree, we have learned how to “tune out” messages that don’t interest or aren’t relevant to us.

How do you get customers to pay attention to your messages?

First, prioritize engagement over impressions. You may get thousands of daily impressions from your billboards, banner ads and emails, but that doesn’t mean that your customers are paying attention. The best way to measure attention is engagement.

Second, expand your channels beyond direct mail and email. When it comes to service marketing, in particular, dealers still heavily rely on these two channels to reach their customers.

Yes, direct mail and email campaigns are effective and should be used on a regular basis. But a significant percentage of your current and potential customers toss mail in the trash and don’t open your emails. That doesn’t mean they aren’t interested in what you have to offer; it simply means these channels are not effective for reaching these customers.

You can’t afford to ignore a large percentage of your customers. The best way to reach them is to market in the moment they are living. Where do they spend their time? Where are their eyeballs?

Facebook
In 2017 nearly 203 million Americans were Facebook users, and 76 percent of those logged in daily. One in four minutes on a mobile device is spent on Facebook, and users spend an average 40 to 50 minutes a day on this platform.

Your dealership probably has a Facebook page, but as we know Facebook has made it nearly impossible to reach customers without advertising.

But what do you advertise, and whom are you trying to reach?

The goal of your campaigns should not be to “sell” your dealership in a general sense. The power of Facebook really comes from its ability to:

• Connect with and send relevant messages to your current customers
• Reach new people who are likely to be interested in your business because they’re like your best existing customers
• Influence people who visited or took specific actions on your website

What if you were able to identify all of your customers in your DMS due for their 30,000-mile maintenance and drop service reminders right into their Facebook news feeds?

What if you were able to search for all Facebook users within a 10-mile radius that own a Ford Edge? You could post a blog or ad promoting the amazing new features in the 2019 Ford Edge, right into their news feed.

What if you could identify which of your customers had purchased tires from an independent tire shop within a certain timeframe? You could drop a tire promotion right into their newsfeed.

In case you’re wondering, yes, this is all possible right now. The amount of aggregate data that Facebook gathers from its users is staggering, and with the right marketing platform, dealers can easily leverage this data.

Google
Not only does Google hold more than 80 percent of total search engine market share, but 80 percent of all mobile searches start on Google.

The real power of Google is that it captures real-time intent, passion and lifestyle from actions taken on Google as well as the rest of the Internet.

This information can be used to identify what car shoppers are doing before, during and after they visit your website. What actions are they taking? Where are they spending the most time?

You can learn a lot about your audience demographics, including age, gender and interests.

Additionally, predictive analytics can tell you which users are most likely to convert, and can identify the most valuable customers for you to engage with via re-marketing campaigns.

This information can be used to create highly personalized and relevant display ad campaigns. Thanks to Google’s attribution, you will get better results with a lower overall ad spend.

YouTube
People love video. YouTube reaches 91 percent of the online population in the U.S. and supports a billion hours of viewing time every day. It’s also the second largest search engine, right behind Google.

YouTube is also owned by Google, so you can get many of the same benefits from, and accomplish the same objectives on YouTube as you can with Google.

The only difference is you do need to create videos, but it’s worth the effort. Because there are millions of videos to choose from, you’ll need to serve up videos that “stop the thumb.” An image of a car or information about a blowout sale are not going to stop the thumb, so you do need to get a little creative.

Of course, there are other marketing channels and social media platforms. But none of them can compare to Facebook, Google and YouTube when it comes to measuring where people spend their time.

It’s time to expand service marketing beyond direct mail and email. To capture your customers’ attention, market in the moment they are living.

I once heard influential thinker Michael Porter say that strategy is as much about what you choose not to do, as what you choose to do. Over time, I have found that, while rewarding, choosing what not to do is far harder. It is always tempting to chase sales by stretching into new demographics, new geographies or product segments. Like an elastic band, the further you stretch the weaker the band is at any one point. Therefore, we must choose carefully where to stretch.

Subaru is a great example. In the early 90s, Subaru of America almost went bankrupt chasing better capitalized competitors by extending beyond its all-wheel drive roots and cultivating a mainstream image. The bottom was an unsustainable 80,000-unit annual sales rate. Amid declining sales, Subaru executives found the courage to abandon front-wheel drive models, nearly 50% of the volume at the time, and refocused on AWD, reliability and niche appeal.

Over time, Subaru grow its brand by adding broader meaning to those attributes. This resonated with its core customers, culminating in the “Love Campaign,” which created a decade of uninterrupted growth with sales approaching 650,000 in 2017. Over the past 25 years, Subaru has resisted the temptation to go where the volume is and stayed true to its customers’ core values.

Building a brand starts with a clear understanding about the intersection between your unique capabilities and your core customer needs.

So, where do you start?

First, when attempting to find that intersection, start with examining the buyer values of your best customers, not those who defected. In service, those values probably include your expertise and amenities, especially the convenience of loaner vehicles which your dealership can uniquely provide. Core customers accept the fact that these benefits come at some premium. So long as your dealership delivers those benefits within levels acceptable to them, they will remain loyal.

Next, when it comes to brand-centric growth, it is important to take these unique capabilities and core customer needs and explain and promote the unique value your dealership delivers. For example, look at your invoice. Do you place a value on multi-point inspections, loaner vehicles and other services provided? Do you highlight technician certifications and tenure, or show videos on OEM provided equipment at every available opportunity, online and in waiting areas? I recently saw an independent repair facility employment ad underlining the phrase “no experience required.” Brilliant! But perhaps not the best way to promote its “unique” capabilities!

Once you have your promotions nailed down, then, and perhaps most importantly, build your brand by executing your brand promise every day. Focus on high quality delivery and recognizing that your customers have a choice. You will never be the lowest cost or most convenient, so you must deliver the best value to those who trust you the most.

Your marketing and showroom behaviors often undermine brand-centric growth. Too often ads and sales behavior are not geared to attracting your best customers. With slowing growth and declining front end margins, I believe dealer profitability is an increasing battle for customer quality, not just customer quantity.

Rather than blasting the airwaves with dubious claims, you would be better served by more direct dialogue with customers who value your services.

One retailer I know redeployed broadcast media money to support Mothers Against Drunk Driving and safe driving clinics at local schools. Which do you think results in more consumers oriented to servicing at dealers – the community-focused message or the dubious claims?

In summary, when looking to grow service, you should first look for and satisfy more customers who value your unique attributes. This limits brand stretch, simplifies execution and builds lasting value.

Yes, this means you have to say “No” to chasing customers with low prices and $9.99 oil changes which undermine your brand, disrupt pay plans and do not build a loyal consumer base, as they defect for the next coupon. But remember, the best way to build your dealership brand is to choose carefully where you stretch.

There is currently much talk in the industry regarding automotive subscriptions as a new innovative ownership model. The fact is, the subscription model has been with us for a long-time. However, most models merely fill the gap between short-term subscription (daily rental) and long-term subscriptions (leasing).

This increased interest in auto subscriptions seems to be spurred by autonomous vehicles. However, while autonomous vehicles can reduce the inconvenience of returning the Enterprise driver to the lot, this technology does not change the fundamental economics. Mass adoption of medium term subscriptions must address the steep early depreciation curve and high remarketing costs, which require high fleet utilization and rapid, frictionless vehicle redeployment from customer to customer.

There is also a hidden assumption that subscriptions will be the demise of the franchise dealer model. Some prophesize dealers will be replaced by fleet management companies who buy direct from manufacturers. Well, not only do these arguments underestimate franchise law resilience, but they also fail to appreciate certain natural dealer group advantages in executing a subscription model.

Let’s look at those advantages for a minute: First, dealers have the local footprint to allow consumers to view and test drive vehicles. While perhaps less important, because one doesn’t need to live with mistakes as long, many consumers will still like to try before they buy. Second, dealers are better equipped to service vehicles throughout the vehicle useful fleet lifespan. Third, and most importantly, dealers have several mechanisms to manage utilization more seamlessly by shifting vehicles from fleet, to service loaners, to used vehicle inventory, to maximize asset value at any given time.

Mike Jackson described the underpinnings of this strategy in a recent Automotive News article. AutoNation is accumulating assets to maximize customer and asset values over time (more on this strategy in a future blog). Large dealer groups can offer consumers any vehicle that meets their needs, new and used, service those vehicles according to OEM standards and efficiently transition vehicles to other owners, or outside the ecosystem when needed.

This economic model is compelling, and it will be difficult for pure fleet management companies to replicate. Smaller dealers do not necessarily go away, but may need to partner with larger fleet operators to service and sell pre-owned vehicles no longer meeting the fleet standard, or for help adjusting fleet mix and size.

Shifting from a traditional model to supporting large consumer fleet operations involves many significant changes, including service operations. Effectively, fixed operation changes from a profit center to a cost center, with new demands. Subscriptions rates will likely include depreciation, capital and maintenance charges, so essentially service revenues get “locked in.”

Dealers will still need to reach consumers and invite them to service, but consumers may be less committed to regular service because they do not own the asset. Dealers will need to address convenience issues, as well as better identify preventive maintenance issues during scheduled idle time.

In this scenario, service operation efficiency becomes a key differentiator, as maintenance cost per mile becomes more explicit. Dealers who have relied on high margin dealer recommended

items to drive service profits will need to shift their focus to increasing throughput, maximizing labor effectiveness and reducing rework. Industrial engineering will trump salesmanship.

How pervasive automotive subscriptions become will depend greatly on the how well innovators address the fundamental economic barriers. However new ownership models evolve, as a dealer you will have the opportunity to benefit from new subscription models as you have with leasing, you just need to think through the implications on their operations and evolve with the market.

Predictive analytics engine allows dealers to leverage their data and conduct multi-channel campaigns designed to increase customer retention

Chicago, IL—Dec 5, 2017— Affinitiv, a leading provider of marketing and technology services to automotive manufacturers and dealerships, today introduced the Connectiv1 Platform, an end-to-end loyalty marketing solution designed to create connected customers for life. Connectiv1's advanced predictive analytics engine makes it easy for auto dealerships to leverage their customer data and target customers with the right message at the right time on the right communications channel.

“Every dealer knows that it's critical to keep customers engaged throughout the ownership lifecycle, but the question is how to effectively do that," said Scot Eisenfelder, CEO of Affinitiv. "Connectiv1's analytics engine connects data across the entire customer journey, providing dealers with a 360-degree view of their customers, vehicles and campaign effectiveness all in one place."

Connectiv1 allows dealers to create and manage marketing campaigns using a multi-channel approach proven to increase reach and frequency, boost response rates, lower marketing spend and improve customer retention. The platform provides dealers with a cost-effective way to implement their manufacturers' customer loyalty and retention marketing programs, and can also be used by individual dealers to create their own retention programs.

Connectiv1 is a cloud-based, mobile-first platform that dealerships access through a user-friendly, modern and personalized portal. The portal, dashboards and reports can all be used on smartphones, tablets and PCs. The platform includes an advanced predictive analytics engine that allows dealers to leverage the customer data they already have in their dealership management system (DMS) and CRM.

"Big data has been a buzzword for a while but the challenge for dealers is how to analyze the data and what to do with it," said Eisenfelder. "Connectiv1's analytics engine removes that challenge by creating models that automatically determine the best timing for communications, best offer types, amounts and best channels to reach customers."

In sales, these in-market timing models can be used to target customers most likely to purchase. In service, timing models can be used to target customers in the service consideration phase and give dealerships an edge over local independent repair shops.

The Connectiv1 Platform manages communications delivery by determining which channels the customer is most likely to see a dealership's offers. Multi-channel marketing campaigns are implemented across mobile/text, digital ads and PPC, social media, direct mail, email and voice channels. The platform supports OEM branding and content management.

Only Connectiv1 allows for digital and social to be treated as a channel for any marketing message. "Typical email and print programs reach about 80 percent of a dealership's active customers," said Eisenfelder. "Leveraging digital and social media channels can effectively capture customers that have partial mailing addresses or have opted-out of traditional channels."

The Connectiv1 Platform includes Affinitiv's groundbreaking Social Roots program, allowing dealers to leverage trigger-based targeting algorithms to drop service reminder notifications and other messaging directly into a customer's Facebook and Instagram feeds.

Through Affinitiv partnerships with auto manufacturers, Connectiv1 is also integrated with vehicle telematics technology. When it's time for a scheduled service, this enables customers to receive in-vehicle notifications and schedule an appointment at their local dealership.

Connectiv1 is the only marketing solution with an integrated service appointment scheduling feature that allows dealers to send promotions, offers, real-time notifications and easy online payment options to customers via email or text. Customers can schedule appointments using their mobile devices and also decline or approve work in seconds from their mobile device.

The Connectiv1 Platform offers dealers unparalleled reporting and dashboard capabilities. Dealers can access a library of reports pre-configured by their manufacturer, as well as create their own custom reports. Reports can be scheduled for daily, weekly or monthly delivery and can be exported to PDF, Excel or image formats for sharing and presentation.

Rich visualization of key performance indicators (KPIs) can be viewed through the integrated Dashboard application, allowing dealers to easily monitor and analyze campaign trends and performance. Connectiv1 has a core library of hundreds of KPIs, charts and tables that are aggregated to the regional- and OEM-user levels.

Additionally, a built-in notifications engine allows users to subscribe to key alerts with a directed response path. This creates greater marketing campaign collaboration, simplifying processes such as campaign order approvals and proofing.

Connectiv1 also has a built in marketing calendar, providing a visual guide to campaigns fulfilled in the past and information on upcoming campaigns.

Currently a dozen OEMs are using Affinitiv aftersales marketing solutions to create loyal and repeat customers. Affinitiv's current OEM partners include BMW, Kia, Lexus, Chrysler, Volkswagen, MINI, GM, Porsche, Mitsubishi, Volvo, Rolls-Royce Motor Cars and Maserati North America.

Headquartered in Chicago, Illinois, Affinitiv has seven offices across North America and India and employs more than 500 team members. Affinitiv solutions are currently in more than 5,500 dealerships across the U.S.

For more information, visit www.affinitiv.com.

About Affinitiv:

Affinitiv is a leading marketing technology company exclusively serving automotive manufacturers (OEMs), dealership groups, and individual dealers. Affinitiv enables its customers to produce, manage, measure, and optimize multi-channel communications to drive brand loyalty and increase revenue across the dealership. Affinitiv’s digital and analytic capabilities offer an end-to-end solution that supports a consistent experience across the entire consumer lifecycle. Affinitiv was formed through the strategic combination of DPS, Peak Performance, OneCommand, and TimeHighway.com. Affinitiv is headquartered in Chicago, IL.

When asked “who are your competitors in service?” most franchise dealers answer, “independent repair shops,” and state that the focus of that competition is price.   

While it is certainly true that most consumers who defect go to independent repair shops -- particularly the large chains, and these shops tend to be less expensive -- that is only part of the story. 

In fact, when VINs are lost, independent shops are often not the largest leakage source, particularly during the warranty period. Rather, it is the most fearsome competitors -- the evil twins “decline” and “defer.”   

At AutoNation, we believed we only completed half the work needed on the VINs entering the service lane. We either failed to find, or failed to sell, that additional work.  Most often price was not the primary factor giving rise to the evil twins.  We failed to achieve our service potential because of inadequate trust and communication. 

So, what can a dealership do to handle these evil twins? Here are a few tips: 

1) Build Trust: Addressing Trust needs to start in the showroom. Years of adversarial negotiation -- final prices that aren’t final and opaque add-ons such as Doc Fees -- set the stage where consumers are conditioned to decline services not included in the glove box plan, almost as a reflex.   

You do not help yourself in the service lane by adding high margin services with unclear value propositions, often at the expense of tires and other lower margin necessities. Most pay plans are aligned with this behavior, as writers are paid largely on the gross generated, not on perfectly meeting the needs of each customer.   

While addressing these root causes requires more fundamental change than I have time to cover in this blog, it is important to acknowledge how traditional retailing practices are undermining lifetime value realization, as that realization is becoming more crucial to retailer success.   

You can start improving Trust by addressing transparency and consistency in your pricing.  Publish pricing for your most common service work on your website. Move from “percent off” to specific offers, and carry those offers proactively from marketing to scheduling to service lane, rather than forcing consumers to ask. Focus selling menus on items consumers absolutely need; factory maintenance, worn items, deferred services and recalls.   

While I am not philosophically opposed to services over and above factory recommended, calling them “dealer recommended” is practically suicidal, reinforcing every negative view consumers have about dealer service. I always tell stores, “sell them if you believe in them enough to use in your vehicle and call them by their purported benefit,” – e.g. longevity, fuel economy, or performance packages. 

When it comes to selling, the best advice I got was “intent trumps technique.” If your service writer clearly has the consumer’s best interest in their heart, consumers with say “yes,” even if the writer fumbles through the talk track.   

So, the question to ask is whether you are hiring “care takers” or “mercenaries” as writers, and compensate them accordingly.  Sorry, I am drifting back to pay plan and other bigger issues. 

2) Communication: Next, you need to take on Communication.  First, most dealership communications are too slow, not informative enough, and in the wrong media.  The largest leakage point is the inability to reach consumers in a timely fashion, with sufficient information for them to decide on additional service requests. With predictive analytics, you can prepare consumers about likely service needs before they leave the store; and while they have time to thoughtfully consider a major expense. 

Too often, writers rely on phone calls rather than texts or emails. These days, digital communications tend to be preferred. They are more likely to be received during the business day and can carry the contextual information the consumer needs to make any major purchase decision. According to JD Power’s 2016 CSI study, nearly 40% of consumers prefer to learn about vehicle needs via text, yet only 3% received a text.  Now that stat is improving, but we have a long way to go. 

3) Break down the MPI Results for the Consumer: When MPIs generate a long and expensive repair list, you can learn selling techniques from dentists.   As one who too often procrastinates regarding dental visits, I am confronted with multiple issues which need to be addressed.  My dentist does not ask for the full order that day, but rather she breaks it into the urgent, the important and the cosmetic.  I think we could learn a lot from that approach.   

4) Third Party Validation: Finally, third party validation can give consumers confidence on the items presented.  

In summary, if you address Trust and Communication, not only could you realize more service revenue from the vehicles entering your service lanes today, but it would also go a long way to stemming later defection to the independent shops. 

Too often, CRM and direct marketing are used interchangeably. In so doing, focus on the “relationship” part of CRM is lost.  I think we can learn a lot about the value of that relationship, and how best to foster it, by thinking about successful personal relationships. 

If you expect to build a relationship with consumers, you cannot always ask for an immediate sale. This does not work in personal relationships, so don’t expect it to work with customers.   

Speaking from experience, I know dealers respect vendors who rise above the immediate sale, but too many lose focus on this basic value in pursuit of this month’s goal.  

The law of reciprocity is critical in building a relationship. If you want something of value, give something of value. No successful relationship is one way. If you want a consumer to set an appointment, value that appointment.  If you want an email address, provide a real price.  Look to sustain relationships between service intervals with invitations to special events, small gifts, or valued information. Are your communications reciprocal? What do you expect consumers to give, and what did you give in exchange? 

To create a relationship, communication needs to align with others’ needs, not yours. Focusing exclusively on sales offers not only falls on infertile ground, but dulls the senses to your future messages, which may be relevant. For example, as avid Yankee fans, my son and I buy StubHub tickets every year to see a Yankee home and away series. Consequently, I receive offers for Braves, Orioles, and – insultingly -- Red Sox tickets every week, drowning out Yankee offers.  The logic being that the common thread in my behavior should make it easy to get my business.  Whereas, the opposite effect is created. 

Are you reading your customers’ signals?  Are you analyzing that behavior and suppressing the irrelevant to allow focus on the truly valued? 

And, if you are not asking for the order with each communication, how do you measure success? 

1. Customer Knowledge.  Good relationships require intimate knowledge. Let’s get back to personal relationships here for a minute; you cannot anticipate and respond effectively without knowing how to reach your friends, their needs and the context surrounding their situation.

Yet, many dealers do not audit or value their customer data.  It’s wise to strive to know at least all contacts, all household members and all vehicles.  If you properly valued this data, you could explicitly invest to grow your consumer knowledge breadth and depth.  Many dealers lament that consumers do not provide email information.  If we all lived by the law of reciprocity, this would be less of a problem.  You could also reward based on CRM record quality, run safety clinics for soon-to-be drivers, or make other, similar investments focused purely on increasing knowledge. 

2. Engagement.  While we all have friends we see only occasionally, our strongest relationships are woven into the fabric of our everyday lives.  Interestingly, a dealership’s product is critical to its customers lives, yet through their communications and interactions, many dealers have conditioned their customers to think about the dealership only for infrequent transactions. 

With each customer you have an opportunity to form non-transactional bond -- from auto dealer, to mobility concierge.  For example, think about the complexity of vehicles today.  Most customers aren’t enjoying their vehicles to the fullest.  When is the last time you invested time in learning a new feature?   

As your communication intents become more diverse, your measurements need to become more multi-faceted.  Hold your communications accountable to producing the desired engagements – e.g. email open, website visits, clinic attendance – and then build models which link these engagement events to direct revenue drives, so that you can adequately allocate resources. 

Building relationships with customers is a fundamental part of this business. No dealership will last long if it cannot develop rapport and make a connection with the customer. So, put the “R” back into Customer Relationship Management and start building real relationships with your customers.  I promise you will soon see these efforts boosting your bottom line. 

For many, autonomous vehicles are synonymous with ride sharing and hence reduced fleet size and negative implications for dealership sales and service.   

Well, I see the world differently.  I see autonomous vehicles opening new opportunities to expand ownership in underserved segments. I also see likely increases in vehicle usage intensity, even should heavy ride sharing usage emerge. 

Let me explain my perspective, starting with the potential for increased vehicle ownership: 
First, while analysts suggest massive fleet reductions based on low vehicles utilization, they do not consider limits imposed by peak utilization and limited population density inherent in our social structure.  

Autonomous vehicles will dramatically improve personal mobility for our rapidly growing population with diminished driving skills, extending vehicle ownership much longer.  Furthermore, ride sharing provides the same freedom and productivity enjoyed by many Americans, to large numbers of the working poor who cannot afford a whole car.  These segments greatly outnumber the low mileage, near urban households, who forego ownership, or at least reduce household fleet size. 

Even as ride share takes hold, I expect usage intensity and miles driven per vehicle per year to rise with autonomous vehicles. This increase in total miles driven will ultimately lead to increased service visits and faster vehicle replacement.   

In addition, ride sharing enables increased drive-time productivity for passengers. This will dramatically shift fly/drive and public/private transportation decisions and may even encourage longer commutes as the office moves to the car.  More importantly, ride sharing has, by its very nature, significant “empty backhauls,” which increase the number of total miles driven per passenger mile, as vehicles find the next passenger. 

These factors should increase total fleet miles driven annually, growing service needs for the US fleet. That is until, or unless, more significant structural changes take place in American work schedule and residential patterns.  

Furthermore, autonomous vehicles can inherently address the distance convenience gaps which tilts service works toward more ubiquitous independent repair facilities.  However, this does not mean that dealers can just sit back and wait for the increased service business to arrive.   

Imagine your vehicle leaving your driveway or the mall at an appointed time to get serviced while you sleep or shop.  This is the future of service!  The competitive tide turns to those dealers who can manage more complex, consumer-responsive service operations.  Not only does this require seamlessly managing multiple shifts, but encourages proactively finding nearby vehicles to service when bays are empty.   

This requires new levels of integration between consumer engagement, telematics integration, shop load management and operation effectiveness. Those who invest first to create these capabilities with grow a service business that generates a return on fixed operations investment multiples over today’s vastly underutilized business model. 

Undoubtedly increased ride share/fractional ownership will drive greater “fleet like” ownership.  Not only will Uber and Lyft evolve into large fleet companies, but we will likely see thousands of private “fleet” owners investing to serve underserved markets, or seeking to cover ownership costs by leasing spare capacity.   

I was recently struck by the entrepreneurism of one of my young developers in India, who bought a car, not for commuting, but for leasing to an Uber driver who drove him to work, then used the car to take fares during the day, before returning him home at night.   

Welcome to the new era of vehicle ownership, Air B&B for cars! Dealers will all need to optimize their business models around fleet. I can easily imagine a world where passenger vehicles are up-fitted like commercial vehicles are today, based on different uses.   

As a dealer, you will have the opportunity to sell vehicles based on Total Cost of Ownership, or even lease on a per mile basis, with all service included.  Aligning service times to down time will be even more critical to these vehicles, because time in the bay takes away from time earning money.  Managing utilization could be a key differentiator for OEMs and dealers. 

If you are a franchise dealer, you can and should benefit from autonomous vehicles, if you recognize and embrace the underlying changes. 

Auto dealers would be better served if outdated metric was retired and replaced with a focus on service revenue per units-in-operation.

Chicago, IL—November 6, 2017— Affinitiv, a leading provider of marketing and technology services to automotive manufacturers and dealerships, today announced that CEO Scot Eisenfelder is challenging the auto industry's long-held assumption that service absorption is the best measure of a dealership's fixed ops revenue potential. Instead, Eisenfelder proposes, dealerships would be better served by the adoption of service revenue per unit-in-operation (UIO) to maximize fixed ops revenue potential. 

“Service absorption is one of the most frequently cited metrics at 20-group meetings. While asking the service department to carry store profitability has never been more important, I believe that focusing on service absorption as a metric is not only limiting, but dangerous to dealerships in the long-term,” said Eisenfelder. 

According to Eisenfelder, his primary issue with service absorption is that it's composed of two unrelated measures and does not accurately reflect store achievement relative to potential. “Service profits are not substantially driven by store fixed costs. Most dealerships' fixed costs support vehicle sales, not service, so there is no reason to expect correlation between the two metrics. Therefore, the metric itself does not provide any guidance for how to optimize service profitability,” Eisenfelder said. 

As an example, Eisenfelder points to brands such as Subaru, Hyundai and Kia that have done well over the last half-dozen years. Vehicle sales have expanded faster than store operations, so dealers have relatively low fixed costs and not a lot of service capacity. This results in naturally high service absorption ratios that give dealers a false sense of doing well, when in fact a high percentage of their UIO revenue is being leaked to independent repair shops.  

Einsenfelder believes that the underlying premise of comparing service profits and store fixed costs represents an archaic view of automotive retailing. "Once upon a time, dealers could count on substantial warranty work and sufficient in-warranty customer pay business from new vehicle sales, so minor tweaks in fixed ops could achieve enough service profits to cover seasonal or temporary new vehicle declines," he said. 

However, front-end profit is in permanent decline and very little service business is guaranteed due to less warranty work, higher quality vehicles, more replace-than-repair work and more aggressive independent aftermarket competitors. So, relying on historic approaches and goals is insufficient to achieve desired store profitability. 

Most important, achieving 100 percent service absorption doesn’t represent a store’s service revenue potential. Today's franchise dealers only capture 20 to 25 percent of the revenue potential from their Units in Operation (UIO). "I would argue the focus on service absorption in part contributes to these results," said Eisenfelder. "Too many dealers are focused only on covering fixed costs, rather than competing on each revenue opportunity and driving the fundamental changes required to wrest dollars from aftermarket chains." 

A recent trend illustrates how dealers are falling behind. From 2010 to 2017, one- to three-year-old units in operation increased 48 percent; however, franchise dealership service and parts sales increased just 41 percent.  "This indicates that dealers are losing connectivity to consumers and vehicles, which is becoming more important as new vehicle sales slow and margins decline," said Eisenfelder. 

Eisenfelder concludes that dealers would be better served by focusing on service revenue per UIO. Not only does this better represent the true service potential for each store, but the metric facilitates more meaningful cross-store comparisons and diagnostics.  

Eisenfelder believes that maximizing revenue per UIO creates a fundamentally different strategic and operating mindset where the dealer does not concede any revenue to the aftermarket. According to Eisenfelder, a dealer focused on revenue per UIO should scrutinize all leakage points and determine what needs to be done to: 

• Provide superior value and convenience to customers 

• Engage in meaningful dialogue with consumers 

• Alter processes to mimic consumer experiences elsewhere 

• Leverage knowledge about customers and vehicle servicing needs 

“With such a view, additional investments in marketing, service lane technology or loaner vehicles are not measured as an expense, but against their impact on incremental service gross profit. With only 25 percent service revenue capture, dealers have the opportunity to dramatically expand store profitability no matter what happens to new vehicle profits, but only if they are willing to look beyond service absorption,” said Eisenfelder. 

Affinitiv’s end-to-end service marketing solution is driven entirely by data and advanced analytics, allowing dealers to send customers highly targeted messages at the right time on the right communications channel. Affinitiv’s layered, multi-channel communications approach has been proven to increase reach and frequency, boost response rates, lower marketing spend and improve customer retention. 

In the past year, Affinitiv has continued to share its vision of creating connected customers for life with auto manufacturers. Currently a dozen OEMs are using Affinitiv aftersales marketing solutions to create loyal and repeat customers. Affinitiv's current OEM partners include BMW, Kia, Lexus, Chrysler, Volkswagen, MINI, GM, Porsche, Mitsubishi, Audi, Volvo, Rolls-Royce Motor Cars and Maserati North America. 

Headquartered in Chicago, Illinois, Affinitiv has seven offices across North America and India, and employees more than 500 team members.  

For more information, visit www.affinitiv.com. 

About Affinitiv:  
Affinitiv is a leading marketing technology company exclusively serving automotive manufacturers (OEMs), dealership groups, and individual dealers. Affinitiv enables its customers to produce, manage, measure, and optimize multi-channel communications to drive brand loyalty and increase revenue across the dealership. Affinitiv’s digital and analytic capabilities offer an end-to-end solution that supports a consistent experience across the entire consumer lifecycle. Affinitiv was formed through the strategic combination of DPS, Peak Performance, OneCommand, and TimeHighway.com. Affinitiv is headquartered in Chicago, IL.

Service absorption is one of the most frequently cited Fixed Ops metrics at 20-group meetings. While asking the service department to carry store profitability has never been more important, focusing on service absorption as a metric is not only limiting, but dangerous to the long-term.   

My primary issue with service absorption is that it's composed of two unrelated measures and does not speak to a store’s achievement relative to its potential. Service profits are not substantially driven by store fixed costs. Most dealership fixed costs support vehicle sales, not service, so there is no reason to expect correlation between the two metrics. Therefore, the metric itself does not provide any guidance for how to optimize service profitability.  

The underlying premise of comparing service profits and store fixed costs represents an archaic view of automotive retailing. Once upon a time, dealers could count on substantial warranty work and sufficient in-warranty customer pay business from new vehicle sales, so minor tweaks in fixed operations could achieve sufficient service profits to cover seasonal or temporary new vehicle declines. 

However, front-end profit is in a permanent decline and very little service business is guaranteed due to less warranty work, higher quality vehicles, more replace-than-repair work and more aggressive independent aftermarket competitors. So, relying on historic approaches and goals is insufficient to achieve desired store profitability. 

More importantly, achieving 100% service absorption doesn’t represent a store’s potential.  Today, franchise dealers only capture 20 to 25% of the revenue potential from their Units in Operation (UIO). I would argue the focus on service absorption in part contributes to these results because many dealers are only focused on covering fixed costs, rather than competing on each revenue opportunity. This leads to tweaking service marketing and operations, rather than driving the more fundamental change required to wrest dollars from aftermarket chains or to more completely service vehicles. 

Recent experience illustrates how dealers are falling behind. From 2010 to 2017, one- to three-year-old units in operation increased 48%!  However franchise dealership service and parts sales increased just 41%!  So franchised dealers lost share, indicating lost connectivity to consumers and vehicles, which will become increasingly important as new vehicle sales slow and margins decline. 

As a dealer, you would be better served by focusing on service revenue per Units In Operation (UIO).  Not only does this better represent the true service potential for the store, but facilitates more meaningful cross-store comparisons and diagnostics. Are underperforming stores not seeing enough VINs?  Not seeing them with enough frequency? Not yielding enough revenue per VIN seen? Which operations are not being performed with enough frequency? 

Most importantly, focusing on maximizing revenue per UIO creates a fundamentally different strategic and operating mindset where the dealer does not concede any revenue to the aftermarket. When focused on revenue per UIO, I encourage you to scrutinize all leakage points and determine what needs to be done to: 

• Provide superior value and convenience to customers 

• Engage in meaningful dialogue with consumers 

• Alter processes to mimic consumer experiences elsewhere 

• Leverage knowledge about customers and vehicle servicing needs 

With such a view, additional investments in marketing, service lane technology, or loaner vehicles, are not measured as an expense, but against their impact on incremental service gross profit. With only 25% service revenue capture you could dramatically expand store profitability, no matter what happens to new vehicle profits. But only if you are willing to look beyond service absorption.