Atlanta plays host to 1 day and a zillion tips
Fixed Ops Journal held its first FOJ Forum in August at the NACE Automechanika trade show and training event in Atlanta. About 150 industry leaders attended the daylong forum, which presented ways to improve service and parts operations that now account for nearly half of the average franchised dealership's gross profits.
Here are highlights (photos: ALISON CHURCH):
■ The future
Coping with complexity
David Graff, global vice president for retail network solutions, sales and marketing at MSX International, the lead sponsor of the forum, kicked off the conference by outlining what he called "the future of fixed ops."
Elements of that future, Graff said, include accelerated vehicle launches, alternative powertrains, connected cars "where you're grabbing data off the vehicle," mobility services such as vehicle subscriptions, and strategies to meet the service needs of time-pressed, tech-savvy millennial customers.
"Are autonomous vehicles going to drive into the dealership, make their own appointments and repair themselves?" Graff said. "How does the dealer cope with this type of complexity? What dealer [previously] worried about data security?
"This environment is constantly changing," he added. "With this type of change, there's always a tremendous amount of opportunity."
Servant of everyone
Bob Cawley, fixed operations director of Horne Auto Group in Gilbert, Ariz., boiled down the 14-hour leadership training course he has developed to barely a half-hour. His reflections on his three decades in fixed ops displayed the evangelical fervor of an ordained minister — which he happens to be.
"A lot of people want to be the boss," Cawley said. "They don't understand that being the boss means you work for everybody. You just became the servant of all. You're going to be taking care of all your employees, all your customers, all your employees' families.
"The only thing you will ever leave on this planet that's of any value is what you instill in the heart and mind of a young person," he said. "The only thing that's important, when you become a manager, is to change the lives of the people who work for you."
Cawley extolled process improvement groups as "one of the best things I've ever done in the business." Such groups, he said, involve all dealership employees who have anything to do with fixed ops, including cashiers and porters. These employees meet regularly with managers to address challenges, share ideas and solve problems.
"Nobody cares how much you know until they know how much you care," he said.
■ Pay plans
The curse of flat rate
As CEO of the consulting and training firm ASE Americas, Andy Church works with 1,300 dealerships in the United States and Canada, and is an expert on developing pay plans for service employees. Church challenged the forum audience to conduct a "gut check" of their compensation plans to determine whether they attract and retain talented employees, give managers appropriate control, and provide a clear career path, especially for millennials.
Flat-rate plans no longer do these things, he said.
"The flat-rate system doesn't lend us the management controls that it needs to, in order to affect performance and ultimately drive profitability," Church said. "It's outliving its usefulness and it's starting to have problems. It's not delivering what we think it's delivering anymore."
A successful pay plan incentivizes, motivates and rewards employees who display positive behavior, such as mentoring of younger workers, Church said. It's easy to explain and understand. And it gives employees a feeling of stability, making them more likely to stay.
"If you don't think [a plan] is broke, talk to your techs," he said. "Look at your turnover."
■ Game changer #1
Hybrid pay plan
Bill Housholder, corporate director of fixed operations at Ganley Management in Cleveland, said his company's hybrid pay plan for techs has increased production by as much as 12 percent while reducing costs, all by moderating the flaws of more traditional pay systems.
"It's less volatile," Housholder said of the hybrid plan. "There's less risk. It incentivizes techs to work harder, smarter and faster, while my costs go down. It's a win-win scenario."
The hybrid plan enables Ganley to tailor compensation formulas to each of the 60 or so techs covered by it, Housholder said. It covers techs at all pay levels, including those who work for the dealer group's collision centers.
■ Game changer #2
Ruth Tomczyk, fixed operations director of Esserman International in Miami, said the service business development center at her dealerships frees service advisers to work more directly with customers by assigning the center's agents to schedule service appointments and make phone calls soliciting service business.
The agents are tech-savvy and fluent in Spanish and English, Tomczyk said. They are expected to take 50 calls a day and place 50 more. The agents use scripts that enable the dealerships to control such things as scheduling appointments to maximize work flow in the shop, she added.
"The ultimate goal of the BDC is to drive appointments," Tomczyk said. "The agents are incentivized on the number of appointments [that are completed]. Our advisers, for the most part, do not make appointments."
■ Game changer #3
Smart parts carts
Dave Wright is fixed ops director at Shaheen Chevrolet in Lansing, Mich., which employs 60 service technicians and has a parts inventory of $5.5 million. The dealership is one of the largest parts wholesalers in the United States. The use of high-tech carts to deliver parts to techs has enabled the service department to operate more efficiently, Wright said.
The carts, which cost about $3,000 apiece, are mobile work stations with computers, printers and access to online parts catalogs. Runners bring parts to the service bays instead of forcing techs to retrieve them from the counter. There is a cart for every dozen or so techs, he added, and the carts also are available to the dealership's body shop.
"The back parts counter was a chokepoint," Wright said. "There was a lot of wasted time. We'd lose a minimum of 15 minutes of productivity with every trip. Now, the technicians never leave their bay. There's a higher level of service."
The carts, he said, create a sense of urgency for the parts counter to fulfill techs' requests. They enable the service and parts departments to work together better, leading to a 20 percent increase in productivity.
That gain, Wright estimated, has translated into a $70,000 increase in service labor gross profit, plus $30,000 in the parts department, which he said is the most profitable element of his dealership.
■ Service loaners
First step to mobility
Trevor Gile, managing partner of Motorcars Honda in Cleveland Heights, Ohio, related how bringing fleet operations in house rather than relying on rental agencies for loaner vehicles added $90,000 to his service department's net profit. "If Enterprise and Hertz can make money, why couldn't we?" he said.
Managing the loaner fleet internally also has enabled his dealership to maximize the value of each vehicle by keeping better track of it, Gile said. That enabled Motorcars Honda to reduce the size of its fleet and retire vehicles from loaner service more quickly, he added. He estimated that the store's loaner program leads to five to eight vehicle sales each month.
Russell Lemmer is general manager of Dealerware, which provides software that enables dealerships to manage their loaner fleets digitally. He warned that in-house loaner fleets can be "riddled with complexity," impose a "crushing cost burden," and frustrate service customers if they are poorly run.
But an effectively managed fleet, Lemmer said, can create the "first real and most meaningful instance of your mobility program." In addition to producing profits, such a fleet can prepare a dealership to offer subscription and valet services and make money from rental vehicles, ride-sharing and the advent of autonomous vehicles, he said.
■ Tech challenge
Hire vets and women
Bernard Hyland, director of industry and automotive services at Calibre Systems and a leading recruiter of military veterans to become techs, called the shortage "the most daunting challenge dealerships face every day."
"There are no more mechanics in the automotive industry," Hyland said, noting that today's techs must master higher mathematics, electrical theory and diagnostics.
Successful techs can have a "fantastic career" that pays well, Hyland said. But he warned that inadequate pay and training of techs, if not addressed, could place automotive retail "in crisis mode within the next 10 years."
Robert Morrison, director of aftersales for Toronto-based Pfaff Automotive Group, lamented that "skilled trades are not top of mind for young people." He told employers who seek to recruit techs: "If you're not engaging at the high school level, you're too late."
Morrison said his company aims to "grow our own" techs, with an emphasis on identifying female and millennial candidates: "We're the dealer group that hires all the women."
He noted that Pfaff Group offers its techs such amenities as employee gyms in each of its dealerships. The strategy appears to be paying off: The annual turnover rate among Pfaff's techs is 11 percent, Morrison said, compared with an industry average of about 25 percent.
■ Keeping customers
'Ultimate' service goal
Retaining customers must be "the ultimate goal" of any dealership service department, a forum panel on fixed ops profitability concluded.
"You've got to keep the customer coming back," said Lee Harkins, CEO of M5 Management Services Inc. of Pelham, Ala., which provides fixed ops consulting and coaching to dealerships. "What would you rather work on, a 7,000-mile car or a 70,000-mile car?"
Harkins noted that about two-thirds of vehicle owners do not return to the selling dealership for service after their factory warranties expire. One reason, he said, is that too many dealers and managers want to turn service advisers into "predators" to capture immediate business.
"That pushes people out the door," he said. "Focus on selling relationships, not the business."
Harkins challenged dealers to raise performance expectations for service technicians and advisers. That requires setting daily objectives for individual and collective production, and holding employees accountable for meeting them, he said. Employees should have input into the goal-setting process, he added.
Service departments can "pick up two bucks in their effective labor rate" by maintaining discipline over such practices as an adviser's ability to offer discounts, Harkins said.
He advised dealerships to "look for technicians when you don't need them" and to "advertise for what technicians want, not what you want." Shops that assign technicians to undergo off-site training should require them to produce an action plan for change when they return, he said.
In paying technicians, Harkins said, "I don't think there's anything wrong with flat rate. It's not the system, it's the management of the system that's the challenge."
Vera Sandiford, fixed operations manager of DeLuca Toyota in Ocala, Fla., called on service departments to exercise discipline in getting parts to technicians efficiently, and ensuring they don't have to wait for keys and repair orders.
At her dealership, she added, shaving two minutes off the time to complete each repair order yields $5,000 in net annual revenue for each technician.
■ New fixed ops model
Dealers who now rely on fixed operations for nearly half their gross profit face a harsh reckoning, Frank Ferrara warns. The former executive vice president of customer satisfaction at Hyundai Motor America, now an industry consultant, predicts that the current rate of contribution by parts and service to dealership profitability will fall by half over the next five years.
"You need to change your business model," he asserted during his closing address at the forum. Dealerships must become "neighborhood mobility centers," said Ferrara, auto-mobility principal at Traction Labs in Irvine, Calif.
Dealers will have to adapt to rapid social and technological changes to "own your ZIP Code" in servicing vehicles in a local market, he said. Among the changes threatening fixed ops revenue that Ferrara outlined:
As vehicle quality improves, there will be fewer recalls that create repair work for service departments. Many of the repairs that remain will be done over the air with software rather than in a service bay.
The replacement of mechanical components with electrical ones in vehicles also will reduce service department profits.
Amazon's growing share of the parts market will jeopardize dealerships' blue-sky value.
The growing availability of safety equipment, and ultimately autonomous vehicles, will cut the collision market in half. "You should have sold your collision shop two years ago," Ferrara said.
With fewer moving parts than internal-combustion cars and trucks, electric vehicles will have less-expensive maintenance and repair requirements.
"It quickly devalues your franchise when you lose your parts and revenue stream," Ferrara said. Dealerships' necessary focus on mobility will reflect a growing shift from personal ownership of vehicles to options such as ride-hailing services and subscription models, he added.
Reinventing the dealership experience will require greater flexibility in fixed ops as well, he said.
"Do not add any more overhead costs," Ferrara said. "Move service off site. The business of the future is going to be fleet-centric, and the only way you're going to do that is by being cost-competitive."
Dealerships' rates of customer service retention, now about 35 percent after three years, must increase to 75 percent, Ferrara said.
"We run off our customers after three years because we measure service managers based on this month's gross profit," he said. "We incentivize service advisers to upsell the next customer who walks through the door. If you can grow your customer base through retention, the gross profit will follow."
Service departments should reinvent their fleets of loaner vehicles as rental cars and trucks, Ferrara said, as a point of entry to subscription business. Such fleets should have at least 100 vehicles, he said.
Dealerships also should place greater emphasis on selling service and maintenance contracts for used vehicles, Ferrara said. Activities such as detailing, charging EV batteries, and leasing service stalls to glass, upholstery and window-tint specialists can expand a dealership's fixed ops business while limiting costs, he added.
"Dealers are ingenious," Ferrara said. "They figure out a way to get things done."
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