Public dealership groups plan divergent strategies

Lithia, Sonic: Service is key to '14 growth

Public dealership groups plan divergent strategies

DeBoer: Longer hours, more customers
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About eight months ago, two dealerships owned by Lithia Motors Inc. in the small logging community of Klamath Falls, Ore., began opening their service departments on Sundays and staying open three nights a week until 11 p.m. They made the moves for customer convenience but by doing so, each increased service revenue more than 21 percent.

Now Lithia, the nation's ninth-largest dealership group, wants more of its stores to do likewise.

"If they can do it in that size market, then expanding our capacity through hours rather than brick and mortar, it's pretty boundless as to our upside growth," Lithia CEO Bryan DeBoer told Automotive News.

Lithia and Sonic Automotive Inc., the nation's third-largest dealership group, see significant opportunities for revenue growth this year by improving customer experience and increasing customer-pay, as opposed to factory warranty, service business. The dealership groups share a goal, but they have different plans to achieve it.

Sonic executives said the Charlotte, N.C., dealership group's new customer experience initiative, launching in July, should lead to better customer satisfaction, increased loyalty and higher market share for its parts and service business.

Lithia's DeBoer said customer-pay gross profit rose 7 percent in the fourth quarter at the Medford, Ore., dealership group. He estimated Lithia will boost the number of service customers 5 to 8 percent this year, in part because the company's rising unit sales mean more potential service business.

To attract and keep those customers, each of Lithia's 96 dealerships will have to improve responsiveness when setting up appointments, offer faster service times and provide perks such as a chance to prepay for service work, DeBoer said.

"We have to set ourselves apart from what we used to be seven or 10 years ago when we didn't wash their cars every time they came in or change their oil in 20 minutes," DeBoer said. "Seven to 10 years ago, we opened our service departments whenever we wanted to be there."

Lithia will hire 100 to 120 service technicians across the company in the next 18 to 24 months to improve service times, DeBoer said.

At Sonic, customer-pay gross profit rose almost 7 percent in the fourth quarter.

"We see that continuing, especially with market share growth," said Jeff Dyke, Sonic executive vice president of operations.

Technology will play a big role, Dyke said. For instance, Sonic is using software to more effectively and efficiently price parts and labor. It also will use technicians and service writers "to a greater extent than we do today," he said.

Sonic's new One Sonic-One Experience customer initiative will increase interaction between customers and technicians, Dyke said. That initiative calls for the use of iPads to handle vehicle sales from beginning to end. Technicians and service advisers also are using iPads and iPhones.

Executives expect higher loyalty as customers get to know and trust technicians, which should help increase market share by late 2016 and beyond, Dyke said.

In anticipation of the growth, Sonic is building new dealerships with the capacity to add bays later, Dyke said. But no immediate increase in staffing is planned.

"What we really want to do is make sure we maximize incomes" of existing employees, Dyke said. "We won't hire any incremental people until we just absolutely have to."

Different directions
 2013 revenueChange from 20122013 net incomeChange from 2012
Lithia$4.01 billion21%$106 million32%
Sonic$8.84 billion6%$81.6 million–8%
     
Source: Companies

You can reach Amy Wilson at awilson@crain.com.


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