Leading dealership groups for fixed ops revenue tell how they stay on top

When Red McCombs Automotive invites its service customers to shoot the works, it isn't kidding.

At its flagship Ford store in San Antonio, the six-dealership group is piloting a quick-service program called The Works. The package includes oil and filter changes, fluids top-off, wheel rotation, checks of tire pressure and wiper blades, and inspections of the brakes, battery and cabin air filter.

The dealership charges $39.99 for The Works. And if everything isn't done in 39 minutes, it's free.

Since Red McCombs Ford launched the program seven months ago, it has sold more than 7,300 of the service packages. Doug La-Croix, the fixed operations director at McCombs Automotive, says: "We have not met our goal 54 times." He won't say whether McCombs plans to offer The Works at its other dealerships.

That kind of focus has helped make McCombs a leader among dealership groups in parts and service revenue per store, according to an Automotive News compilation. In 2016, McCombs Automotive averaged $18.4 million per dealership in such revenue.

The most successful groups on the Automotive News list rack up more than $10 million a year in parts and service revenue per dealership. They pursue varied strategies to maximize fixed ops profits, from offering superquick service to driving shop customers to the airport.

They agree that service departments' bottom line is increasingly crucial to their dealerships' financial health. NADA Data 2016, the National Automobile Dealers Association's annual report on franchised new-vehicle dealerships, notes that parts, service and body-shop revenue accounted for 47.3 percent of the typical dealership's gross profit in 2016, up from 45.4 percent the previous year.

By contrast, profit from new-vehicle sales accounted for 27.8 percent of total gross profit last year, down from 29.5 percent in 2015. Profit from used-vehicle sales dropped to 24.9 percent of total gross profit, down from 25.1 percent the year before.

"Parts and service isn't the back end of your business," says Jeff Bakich, an industry consultant who moderates NADA 20 Groups that emphasize fixed operations. "It is the backbone of your business."

Each McCombs Automotive dealership routes as many service customers as possible through its quick lanes, assigning two-technician teams when needed to work on vehicles in those lanes, LaCroix says. In June, the group booked more than $1.1 million in revenue from its dealerships' quick lanes — nearly 12 percent of its total fixed operations sales.

"We do everything we can to get the customer in and out quickly," LaCroix told Fixed Ops Journal.

Mac Haik Auto Group in Houston averaged more than $11 million in parts and service revenue at its 16 dealerships last year. Jeff Heath, the group's CFO, identifies "a shortage of people and a shortage of space" as the two factors that do the most to hamper the growth of fixed ops revenue.

To address the former, Heath says the Haik group's technician training program provides a ready supply of service techs at its dealerships. On the latter, he adds that the group has remodeled or rebuilt all of its dealerships in recent years, including expansion of parts and service areas. The $4 million overhaul of its Ford-Lincoln dealership in Georgetown, Texas, includes a new service shop for heavy-duty trucks.

The Haik group does "gigantic" business in wholesale parts in its markets, with a parts inventory worth $18 million. A service customer knows that "I don't have to wait at Mac Haik because they carry a large amount of parts, or they can get it right away," Heath says.

Hitchcock Automotive Resources, in City of Industry, Calif., outside Los Angeles, operates just three franchised dealerships. Yet those stores each averaged more than $16.5 million in service and parts sales last year, a 13 percent increase from 2015.

Howard Hakes, the group's president, requires his service managers to conduct careful reviews of missed service appointments and sales to try to bring customers back. The group also aims to give customers good reasons to spend more time at its dealerships.

Its Toyota dealership in Puente Hills, Calif., includes a Subway sandwich shop and a movie theater that attracts 60 or more patrons some weekends. "On Saturday, getting people to leave is a problem," Hakes says.

Online sales account for a growing share of Hitchock's parts business. Through its own websites and on an eBay site, the group offers a large selection of Toyota Racing Development parts that appeal to sport enthusiasts, he says.

Wholesale parts account for about 20 percent of the Hitchcock dealerships' overall parts sales volume. Hakes says he aims to turn his parts inventory every month and to get discounts by ordering fast-moving parts in bulk.

"Inventory control is huge," Hakes says. "In parts and service, you have to be numbers-driven."

Vehicle customization and accessories sales helped Galpin Motors Inc. in Southern California average $16.6 million in parts and service sales at its seven dealerships last year.

Galpin Auto Sports, which tricks out cars for these dealerships, adds as much as $500,000 a month to the company's revenue, says Beau Boeckmann, president of Galpin Auto Sports and vice president of Galpin Motors. Galpin operates a huge​ parts warehouse and a thriving wholesale business, with 20 trucks delivering parts throughout its market.

Another major dealership group in Southern California, Fletcher Jones Automotive Group of Newport Beach, averaged $15.96 million in parts and service revenue in 2016 at its 17 dealerships.

Garth Blumenthal, general manager of Fletcher Jones Motorcars in Newport Beach, the group's flagship Mercedes-Benz dealership, cites the group's Preferred Owner Program as a key to service customer loyalty and retention.

Anyone who buys a vehicle from Fletcher Jones is enrolled in the program. Service benefits include free loaner vehicles, airport shuttles at its Newport Beach and Ontario, Calif., Mercedes-Benz stores and free car washes Monday through Saturday.

Such amenities have enabled Fletcher Jones to build relationships over generations with families of customers, Blumenthal adds. "If they need their car serviced, they think of us," he says.

Don Tipton, an automotive retail consultant in Jacksonville, Fla., counsels dealerships that seek to boost their parts and service revenue to perform a daily review of repair orders to look for missed opportunities.

That process can acquaint a dealership with the mix of service work it is attracting and the extent to which customers are declining repair recommendations, says Tipton, president of DTC Retail Consulting Inc. "Just looking at numbers without analysis is dangerous," he adds.

As vehicle sales plateau, service departments will need to do even more to keep customers in order to maintain dealership revenues, says Steven Szakaly, NADA's chief economist.

"Part of the strength of the diversity of the dealer retail body is they can have different approaches to how they run their service area," Szakaly says. "One-size-fits-all does not work."

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