This year's record recalls are creating capacity bottlenecks in the service shops of the country's largest dealership group.
The recall pressure is making it tougher for AutoNation Inc. to take advantage of coveted customer-pay service work, AutoNation CEO Mike Jackson said.
"If we had more technical capability, we would be growing faster right now," Jackson said in a conference call after the retailer reported second quarter earnings. "We are at this point substituting recall work for normal customer-care work because we don't have enough technicians."
At the start of the year, AutoNation planned to hire 400 service technicians, representing a nearly 10 percent bump in its technician head count. Even though the retailer is more than halfway to that hiring target, executives now say 400 is not going to be enough.
"Frankly, we need more," said AutoNation COO Mike Maroone, noting that recall activity "is going to continue to be very brisk."
Neither Maroone nor Jackson gave a new hiring target, but a spokesman later said that AutoNation is adding 100-plus tech jobs to its hiring target. The company now aims to complete that hiring during the first quarter of 2015.
"We're actively out recruiting to expand that capacity and believe there's good opportunity," Maroone said.
Recall work accounted for 3 percent of AutoNation's parts-and-service revenue and 4 percent of that unit's gross profit during the second quarter.
AutoNation has targeted a growth rate for gross profit from parts and service in the mid-single digits. During the second quarter, parts-and-service revenue and gross profit both grew 7 percent. But the company's gross profit from customer-pay business, which is a growth focus, grew just 1 percent.
Jackson said the recall pressures on service capacity will continue. "If you just take General Motors, which is approaching 30 million announced recalls, of which 500,000 are completed, we'll be talking about this next year," Jackson said.
GM brands accounted for about 10 percent of AutoNation's new-vehicle sales in the second quarter.