Service moves up front

Editor's note: The original version of this story, which also appeared on Page 1 of the March 11 issue, misstated the name of Ron Jona Collaborative.

Bill Underriner is building the dealership of the future. He's putting service front and center, with the showroom alongside.

Service is so important to Underriner that his showroom will shrink, in part to accommodate service business.

"When the customer drives up to the store, the first thing they're going to see is the service department," says Underriner, owner of Underriner Motors in Billings, Mont., which sells Hyundai, Volvo and Buick in one dealership and Honda in another store.

Underriner's new dealership reflects what architects and industry leaders say is a growing trend: dealerships putting the service department in the front of the building, next to the showroom. Future service departments will be bigger and grander than those of the past, which often were not much more than a small, dingy, noisy garage in the rear of the store.

Building a showcase upfront service department is not cheap. And for dealers remodeling a store rather than building a new one, it can be a logistical nightmare to renovate while keeping service bays open.

But with the service, parts and body shop generating 43 percent of an average dealership's annual gross profits, the new design pays off, many dealers say.

"The big thing depends on the site of the building and if there is space to do it," says Shane Burley, principal at Ron Jona Collaborative, an architectural firm in suburban Detroit. "Physically moving it is costly, but it's the space that matters. And a dealer would benefit by physically moving service up front."

Burley and other architects say locating the service write-up lane in the front of the building, oriented to the main street frontage, is a trend. Another is to have two customer lounges situated off the showroom. There should be a large lounge with a TV and a smaller one that is quiet for doing work, says Tony Dellicolli, founder of Cityscape Architects Inc., also of suburban Detroit.

Dellicolli, who says his company has remodeled or built many U.S. dealerships in the past 20 years, says the idea of putting service at the front and side of the showroom surfaced when General Motors launched Saturn in 1990.

"The message [Saturn] was sending is they didn't want the service customer to feel like a second-class citizen," Dellicolli says. "They wanted the service customer to feel as important as the buyer."

And service is important. On average, 12 percent of a dealership's annual sales are generated by the service, parts and body shop, says Chip Maher, dealership management consultant for the National Automobile Dealers Association 20 Group Program in McLean, Va.

Underriner estimates service contributes 27 percent of his annual gross revenue. His new building, which will cost $5 million to $6 million, should boost that to 41 percent, he says. He expects to earn a payback on his cost to build it in 2.5 to four years.

Underriner Motors' Buick, Hyundai and Volvo dealership was built in 1986.

It's antiquated by today's standards, Underriner says. In addition to having the service department behind the showroom, it has only nine service bays and lacks an alignment rack and a car wash. He cannot sell tires because he lacks space to stock them, he says.

This summer Underriner, who sells about 230 new vehicles and 300 used vehicles a year through the Buick, Hyundai and Volvo store, will break ground on a store across the street from his Honda store. It will have 22,000 square feet, almost twice the size of his current 12,000-square-foot store.

Most important, Underriner's service department will be in the front. His three brands will sit in a showroom off to the side.

"I feel putting the emphasis on the service department where the customer always comes, they will eventually buy a new car," Underriner says. "At least I get a shot at them again because of the great service that I do."

In his current location Underriner can fit seven vehicles in his showroom. The new one will hold five. And there will be other changes.

"We'll have a salesperson in the service department, and we'll put a car in the service department. We'll rotate the brands in and out," Underriner says.

Over the past decade, Lithia Motors Inc. and other large public and private dealership groups have flexed their financial muscles to put service up front.

Lithia's capital expenditure last year was $66 million. A significant part went to remodel 15 stores, says Lithia CFO Chris Holzshu.

Most had major renovations to the service department to ensure "there's a connection between the sales side and the service side," Holzshu says. It's a model Lithia started about nine years ago, says CEO Bryan DeBoer. About 95 percent of Lithia's 87 dealerships now have the service department in the front, DeBoer says.

But some are still in transition.

"We have stores that historically you drive into the shop and the service writers would be lined up inside, and it's not a very good customer experience because they're hearing the impact wrenches, turning wrenches, exhaust of cars, hammers and everything else," Holzshu says. "What we're trying to do is make sure customers feel good when they come in our dealerships."

And putting service close to the showroom conveys to a customer that service is not an afterthought. It's a key service the dealership provides, Holzshu says.

Whenever Penske Automotive Group Inc. remodels or builds a new dealership, the service department always has a connection to the showroom, says Chairman Roger Penske.

"We have tried to accomplish that. It's not perfect where we have split operations, but generally that's the new model," Penske says.

About five years ago Penske started the design on stores in the United Kingdom, where customers once had to park outside the dealership and walk to the service drive in the back or side of a facility. Now they drive their cars into an indoor service drive up front, he says.

"The customer is in a much nicer environment, which allows us to take more time. There's an opportunity to upsell the customer on service," Penske says. "It's almost like driving into the showroom with your car the way we've finished these drive-throughs."

Penske's service revenue grew over the years in part from making architectural changes, he said, though he did not provide a specific figure. He says his service and parts business is about 11 to 12 percent of annual revenue and 44 percent of his company's gross profit.

Asbury Automotive Group Inc. also emphasizes the service department when it renovates or builds a dealership. New stores are getting a semicircular service drive, which enables the dealership to get many more cars under cover, CEO Craig Monaghan says.

A new Toyota store in suburban Atlanta is one of Asbury's showcases for the layout. It includes a coffee bar and cafe for customers. Asbury is trying to open up the visibility of the service bays themselves. Waiting customers can sit at the cafe and watch their cars being worked on.

"It's the future," Monaghan says. "It's a very comfortable place to be."

The investment is paying off, he adds. A Florida Mercedes-Benz store in the Tampa Bay area is setting records for sales and service revenue two years after it opened.

Dealer Jim Snell's father owned a Buick dealership from 1973 to 2005. Snell says the service department remained in the back of the store, treated almost as a separate business.

Starting in 1995, Snell built his three Land Rover dealerships with his service advisers in the front, near his showroom. His customers walk in from the service drive into the service reception area, which is part of the new-vehicle showroom, Snell says.

"It's worked great. The customers don't feel like they're out back somewhere," says Snell, owner of Land Rover Dallas in Dallas; Jaguar Land Rover Austin in Austin, Texas; and Land Rover Frisco in Frisco, Texas.

Snell's stores combined sell about 2,200 new and used vehicles a year, he says. He is unsure if having the service area near the showroom has helped him sell more vehicles, but he knows his store configuration has improved customer service.

And it gives customers a chance to visit with their salespeople while waiting for their vehicle repair, which reinforces customer loyalty, he says. Also, with the parts department up front, customers often buy accessories while milling about, he says.

Snell followed Land Rover's suggested floorplan design in his construction. That design coincided with a program Land Rover was promoting. Land Rover wanted dealers to cross-train salespeople to be able to write up a service order and a service adviser to be able to sell a new car, Snell says.

Architect Burley says as automakers started applying pressure for facility improvements in recent years, his business has increased, especially from dealers wanting to move service drives to the storefront.

"We have about six dealerships in progress now," Burley says. "It's picked up in the last year."

One of those is a Detroit-area Chevrolet dealership expected to be finished by year end, Burley says. The dealership's building had not been renovated since the 1950s, he says. Burley's firm moved the dealer's service entrance from the middle of the building to the front of the dealership. Next, the customer lounge and the quick-service bays were moved to convert that space into a new reception area where customers drive in under shelter and a service adviser greets them.

"We integrated the customer lounge into the showroom and put a separate customer lounge next to the parts department so they can sell parts," he says.

All of that was easy compared with planning the job, Burley says. The dealer, like most dealers, expected to keep operating during remodeling, he says.

"Obviously, they don't want to shut down and lose their business," he says. "Each stall brings in money, so you can't lose a stall."

It took a year of planning the six phases to do the job without interrupting business, Burley says.

"They had some flex space where they could temporarily set things up," he says. "It's a lot of planning if you want it done properly."

And it's costly.

Cityscape's Dellicolli says the minimum cost to move a service department would be about $500,000 for a small dealership. The average renovation cost ranges from $750,000 to $1.5 million. One job he did to reorient the service lanes, the write-up area, the showroom and the lounges cost $2.5 million.

It usually takes nine to 18 months to complete a renovation, Dellicolli says. But the investment is worthwhile, he says, because most dealers do not make big profits on new-vehicle sales.

"The reason a dealer is so willing to sell new cars is to get units in operation so they have a better chance to service the vehicles," Dellicolli says.

"That's why there is so much emphasis on service now, on bringing the service lane, the service writers and the services lounges to the forefront."

It also boils down to more opportunity for dealers in the service business. Franchised dealerships hold about 20 percent of today's car-repair market, says industry consultant Glenn Mercer, who recently completed the second phase of a facility study for NADA.

"We have a lot more upside," says Mercer, a former McKinsey & Co. partner. "In theory, we can go out and take customers away from independent aftermarket."

And for dealers such as Underriner, it's a chance for a new business model that emphasizes maintenance and repair work and vehicle sales as equally important in the customer's experience.

"It's the efficiencies with how we'll set up the shop that will all increase business," Underriner says. "Right now, it's not efficient."

Amy Wilson contributed to this report