Despite the pandemic, consumers are still in-market for vehicles. Manufacturers, at one point, were forced to slow production due to local and state regulations. As a result, some dealers have been struggling to maintain a full inventory of vehicles to offer car shoppers. Of course, dealerships cannot control when (or how many) new vehicles they receive from their OEM, so, increasingly, many dealers are turning to the acquisition of pre-owned vehicles.

In the past, dealers had a plethora of options to acquire these including trade-ins. But now, dealers are forced to focus on auctions for vehicle acquisition. At the same time, consumers are currently setting their sights on used vehicles, which causes a whirlwind of supply and demand.  

The current situation: There are plenty of used vehicles and not so many new ones. And, it seems, used vehicles have become more attractive to consumers, which forces dealers to acquire more of them to meet demand and to generate sales revenue.

This “perfect storm” has forced dealers to overpay for used vehicles at online auction sites which, of course, drives higher prices. It is so bad that in some cases larger dealer groups are literally bidding for the same vehicles against themselves! Nowadays, it is not uncommon to see a CarMax, Carvana, or other large dealer group outbidding one another, while smaller dealers have to put the brakes on in frustration. When a dealer does acquire a vehicle at auction, just as it has always been, they are forced to sell that vehicle as quickly as possible to avoid an increase in the cost of the vehicle because of floorplan interest.

And therein lies the problem.

Dealerships need to stay in business and the only way they can do that is through two main revenue sources: sales and service.

Let's focus first on sales. Because dealers need to have an ample pre-owned inventory supply and are overpaying for those vehicles, they are forced to sell those vehicles quickly. Some dealerships sell those vehicles as fast as they get them. While that is great as a revenue stream, it may not be so great for the consumer. If dealers are selling pre-owned vehicles within days of getting them, they most likely do not have the time to repair any open recalls before the sale. This means consumers are buying and leaving the lot with unsafe vehicles that are potentially deadly. While no law prevents dealers from selling a used vehicle with an open safety recall, dealers are being forced to sell the car FIRST and then invite the customer back to get the recall repair completed. Yes, it is legal. However, at the state level selling a used car with an open recall is a legal liability under unsafe product laws, should that unrepaired recall lead to an accident.

When it comes to service, dealerships also have a difficult (albeit different) path. Service revenue is not only produced by regular maintenance and normal warranty issues but also recall repairs. Currently, 48 states mandate the OEM reimburse the dealership at retail rates. That is good money! While most service departments currently enjoy plenty of business, many are missing out on revenue that is guaranteed by the manufacturer due to the sales department selling vehicles faster than they can repair them. There is no guarantee that a consumer who purchases a vehicle with an open safety recall will return to the dealership to have the safety recall repaired. These consumers may have it repaired at a more convenient competitor or, even worse, never.

The potential of a used car calamity is akin to a snowball rolling down a hill. The further it travels, the more snow it gains and the faster it goes, exacerbating the issues. We are already seeing recall repair completion rates decrease at a time when the numbers of recalls are increasing. That can only be attributed to the accelerated demand for used vehicles. If this continues, we’ll simply see more unsafe cars on the road. And that is precisely what our mission is to avoid.

It is no secret that the service department tends to get the smallest part of the dealership’s marketing budget, despite bringing in the most revenue. Some dealers take this for granted with marketing dollars focused on sales. I get it – dealerships originally served as a critical, local arm of the OEM’s distribution of new models. However, due to the pandemic, we are in extraordinary times, offering dealers an opportunity to explode service department revenue.

In down markets, many dealers tend to cut marketing budgets. Interestingly, one dealer recently featured in an article in Automotive News did quite the opposite and increased the dealership’s marketing budget. This resulted in it taking the #1 spot in the region and #5 in the United States.

My suggestion is that you translate this strategy into fixed ops. Service revenue can increase simply by the change in consumer behavior during this pandemic. One of the most frequent objections to service recommendations and recall repair is that the customer cannot be without their vehicle for an extended period. Currently, due to the pandemic, many people are not commuting but are working from home. Kids are doing distance learning at home, so parents do not need to drive them to school. The same goes for soccer practice, and the multitude of activities consumers need their vehicles for. Consequently, they are probably more willing to give up their vehicles to get that work done or recall repairs they have been putting off.

While the customer may not need a new vehicle right now, their vehicle still needs regular maintenance and any needed recall work. This pandemic allows dealers to receive a “yes” more frequently than a “no” when presenting service recommendations or recall repairs. In addition to increasing service revenue, you can still get sales opportunities through a service-to-sales program.

My point is that if you focus your entire marketing efforts on sales, you might be missing out on a lot of revenue that is pretty easy to acquire. It could even be as simple as reviewing service recommendation and recall repair declines from existing customers over a while and reaching out to them. For example, according to the Automotive News article, the first commercials the dealership ran were not about pricing or payments, but rather that the dealership was there for the customer.

Why not introduce some service marketing into your budget to target those customers in your PMA? While other dealerships are cutting their budgets, this is the perfect time to increase market share, boost revenue and even acquire new customers – all simply by reaching out to customers with messages that are not just, “We’re here for you” for vehicle sales, but also “We want to make sure your vehicle is safe.”

You may want to think twice about passing on this unique opportunity. Nobody knows how long this window will last. But those dealerships that are aggressive in both sales and service marketing will probably find they increase volume and sales and service revenue. And on top of that, reaching out to owners of vehicles affected by a recall will probably be a very appealing gesture to those consumers who perhaps felt abandoned by a competitive dealer. Also, note that recalls cannot be repaired by independent repair shops. Customer acquisition is what leads to loyalty. The trick is getting them in for service. The rest is easy.

While some dealerships have done an incredible job of surviving the storm that is the COVID-19 pandemic, in many cases, sales and service have decreased. Customers still want to buy cars and service their vehicles, but a good amount are still in a self-isolation.

As a result, most dealerships have experienced a decline in service revenue at a time when they are also having to invest in expensive concierge-type services such as pick-up and delivery. These additional services are now part of the “new normal,” rather than optional. The dealership now faces the expense of employees for vehicle pick up and return. And, if the customer does not receive a loaner vehicle, it requires TWO employees to accomplish this service properly. Imagine how the margins decrease when a customer wants a simple oil change and declines service recommendations. The dealership has already committed to picking up their vehicle and bringing it back to the owner. The dealership might even see a loss of revenue in this scenario.

Your dealership can aim higher. Here is where being vigilant on a full and thorough inspection, as well as ensuring that you conduct recall lookups and repairs, can help. Every dollar in revenue, whether factory reimbursement for a recall repair or recharging the air condition, matters.  A few minutes more to properly inspect a vehicle not only translates into revenue but also may define whether a consumer views your service and attention to detail as exceptional.  This is the perfect opportunity to identify ALL services a customer’s vehicle needs, not just the requested service and recommended services, but also any recall work. This helps keep the roads safer and bolsters service revenue.

Take the time to research and identify open recalls for each vehicle that comes into your service department. Regardless of whether you proactively reach out to a customer specifically about the recall or simply notify the customer that one exists when the customer’s vehicle is in your service department, the customer is much more likely to agree and allow you to perform the recall repair while you have their vehicle in for repair anyway. This, in turn, provides additional fixed ops revenue and a better customer experience.

Yes, times are tough, but all the more reason to increase revenue by exploring ALL available options, including any outstanding recall work. Now is the perfect time to get that service business, increase revenue through recall repairs, and make your customers happy.