A surge of warranty business largely accounted for Lithia Motors Inc.'s gain in service and parts revenue last year. That's prompting the group to urge store managers to emphasize winning more customer-pay work.
Customer-pay work is important because it allows a dealership to sell other service and parts, and dealers say it allows them to win repeat business and customer loyalty by properly serving customers.
CEO Bryan DeBoer said the gains in Lithia's service sales came from warranty work. Last year a massive number of vehicles were recalled.
"We almost shun our customer-pay customers because we have so much warranty coming through the door, which isn't our commitment. Our commitment is to our consumers or to our shareholders," DeBoer told Automotive News. "We lose our focus."
For the year, Lithia reported a 34 percent rise in service revenue to $512 million. On a same-store basis, Lithia had a 12 percent increase during the fourth quarter in service revenue to $113 million.
Yet that 12 percent increase only kept pace with sales growth, DeBoer said. For the quarter, Lithia sold 33,656 new and used cars, a 10 percent increase from the year-before period.
"With the influx of warranty work, it distracts you from the ability to capture customer pay in those stores that have not fully developed their team to be able to find new opportunities," DeBoer said. "So what happens is they grow, say, 30 percent in warranty work and then they go backwards 5 percent in customer pay."
DeBoer is urging service managers at Lithia's 130 stores to get back to the basics. He said Lithia service shops must deliver high-quality work at efficient speeds.
"It's typically setting new expectations for our frontline people, our service advisers, as well as our technicians," DeBoer said. "Where do we up-sell and sell additional business and help inspire them through compensation plans, through sharing opportunities that manufacturers may provide to us?"
Lithia, of Medford, Ore., will benchmark its poor performing stores against its top performers to help boost the customer-pay business, DeBoer said. But he said Lithia gives autonomy to general managers to make operational decisions for their markets so long as they meet Lithia's performance targets.
DeBoer said it is up to managers to find out "how they can open up their teams' eyes to find that new opportunity and then align that with better processes, better technology, better cycle times and behind the scenes to help the customer experience be quicker and cheaper."
Lithia ranks No. 8 on the Automotive News list of the top 125 dealership groups based in the U.S. with retail sales of 67,177 new vehicles in 2013.