SERVICE MASTERS

Dealerships boost fixed-ops spending to fend off rivals, retain customers

Published in Automotive News Nov. 3, 2014

Alan Brown, general manager of Frisco Volkswagen north of Dallas, has a 62,000-square-foot dealership under construction on 14 acres.

About 60 percent of the $23 million construction price tag is going into fixed operations -- roughly double what would have been spent on fixed operations less than a decade ago, Brown says.

The massive investment is paying for 36 service bays -- including eight dedicated to express service -- loaner cars and a staff of more than 30.

Frisco Volkswagen is one of many dealerships investing heavily in fixed operations. They are adding service bays, longer hours, dedicated express lanes and technology to boost efficiency.

Dealers say the investments are justified by strong profits, a big pool of potential customers who defected to independent shops and national service chains, and opportunities to boost customer satisfaction.

Cars that are more high-tech than ever give dealerships with factory-trained technicians, special tools and certified parts an increasingly important edge over independent shops. But challenges remain, such as a shortage of qualified technicians and pricing pressure from national chains.

Dealership net income from fixed operations has exceeded profits from new- or used-vehicle departments for the past two years, according to the National Automobile Dealers Association.

Alan Brown, in what will soon be the massive, 36-bay service center in his new Frisco VW dealership, near Plano, Texas: "What it boils down to is, we believe as auto dealers we did a bad job taking the eye off the customers over the last 20 years. Now we're putting a bigger focus on bringing those customers back." Photo credit: RYAN BEENE

Service and parts sales accounted for 46 percent of the average dealership's gross profit in 2013, NADA says.

"There's no question that the No. 1 profit center in the dealership today is our fixed operations," said Ralph Mauro, owner of International Autos Group, an 18-franchise group of mostly luxury and import brands headquartered in suburban Milwaukee. "More important, it's really the future of the success of the dealership."

Mauro recently completed construction of a dealership that meets Audi's Terminal design standard at Audi Milwaukee, one of the group's three Audi stores.

Yet the dealership's 18-bay service department soon will be unable to accommodate the booming number of nearby Audi owners, so Mauro says 12 bays will be added in the next 12 months.

The plans are partly fueled by Audi's rapid growth and to prepare for the brand's goal of 200,000 annual U.S. sales by 2018. In 2013, the brand sold 158,061 vehicles in the United States.

But the expansion will help in other ways, too.

"There's no question that the No. 1 profit center in the dealership today is our fixed operations. More important, it's really the future of the success of the dealership."
Ralph Mauro
International Autos Group

The speed and ease of appointment scheduling and pricing are crucial. Mauro says his stores are working to get scheduling-to-appointment wait times down to two days. The dealership offers online appointment scheduling, and its business development department uses email marketing, phone calls and direct mail to pitch service offerings to customers in its database, Mauro says.

Another challenge is a shortage of qualified technicians. Mauro says Audi has helped with factory programs to attract and train dealership technicians, but the dealership group also recruits prospects from nearby high schools and technical colleges.

Prices that consumers pay for service also are important, so Mauro says staffers shop nearby independent shops and national chains to ensure service prices are on par with the competition. But with factory parts and certified technicians, dealers are at a disadvantage when it comes to costs.

"We're doing it with certified Audi techs, and our training costs, shop costs and labor costs are much higher than the independents are," Mauro said. "That's not a problem for our customers; that's our problem and we need to be competitive."

Attracting defectors

For Brown in Texas, his big-budget service department reflects an opportunity to capture a huge pool of local customers who either live in or pass through the area. Frisco is near the booming suburb of Plano, where Toyota is moving its national headquarters.

Brown expects to handle about 50 to 60 service customers per day when the store, a new point, opens for business on Dec. 1. But, Brown says, they could see 100 per day if they play their cards right.

He also is vying to regain customers that dealerships across the country have lost to independent repair shops and national chains.

"What it boils down to is, we believe as auto dealers we did a bad job taking the eye off the customers over the last 20 years," Brown said. "Now we're putting a bigger focus on bringing those customers back."

Dealership amenities can help. Comfortable waiting areas with refreshments, wireless Internet access, flat-screen TVs and other features are part of what Brown says he can offer customers that national chain repair shops cannot match.

Driving service
Dealerships nationwide are expanding their service business. Here's a snapshot of an average store's performance.
 20132009
Service and parts sales$4.8 million$4.1 million
Repair orders written14,00213,884
Technicians1514
Service bays2017
Source: National Automobile Dealers Association

"Here's reality: If you go get your car serviced at Pep Boys tonight, you're going to sit in a dirty waiting room on a plastic chair looking at a 15-inch TV screen," Brown said. "If you come to my dealership, you're going to sit in our multimillion dollar showroom."

Tim Zellers, owner of Tamiami Hyundai in Naples, Fla., dedicated 10 of the dealership's 32 service bays for express service such as oil changes, tire rotations and alignments.

Efficiency-boosting measures such as sending tubes with motor oil and other fluids directly into the express bays and keeping a cache of fast-selling parts at arm's reach inside the bays keeps the time for such basic services down to a zippy 20 minutes.

"The big thing today is being fast. People need to be able to come in and out quickly," Zellers says.

Zellers has had his Hyundai franchise for five years. He ramped up the dealership's express service operations a month ago when the store moved into new, larger quarters with enough capacity to handle the effort. Already, he says, customer satisfaction is trending up.

Older cars

Larry H. Miller Hyundai Peoria, near Phoenix, moved into a new store last year that increased service capacity by a third. With more bays, the dealership could expand its use of Hyundai's Car Care Express service program.

David Lesaffre, the dealership's service director, says customer satisfaction scores and retention have increased since, while the number of new-car customers returning to complete their first service appointment is at 88 percent.

"Everything's been lifted due to the fact that we're getting customers in and out in a more timely fashion," Lesaffre said.

Looking ahead, Zellers says service opportunities will remain strong because today's high-quality vehicles are lasting longer than ever. Though that means less warranty work, it presents more opportunities for repair business.

"People keep their cars longer. With good maintenance, you can expect a life of about 150,000 miles," Zellers said. "If people are going to get the full life and use out of their car, they're going to have to maintain them."

You can reach Ryan Beene at autonews@crain.com

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