Struggling service department's remedy yields great prognosis

In medical parlance, the service department at Bristol Honda in Tennessee was in critical condition when Shawn Butler was hired last April as fixed ops director — still taking nourishment but ailing nonetheless.

But after roughly six months of intensive care and rehabilitation, the department now is in fine fettle as evidenced by significant increases in critical metrics such as repair orders per day, average revenue per repair order, overall gross and net revenue, combined effective labor rate and fixed absorption rate.

Tightened up protocols and processes — including a drastic reduction in the number of department operation codes — have greatly improved efficiency as well as communication between the parts department, technicians and service advisers. That, in turn, has boosted productivity, which translates into increased revenue and better profitability, Butler says.

Fixed Ops Journal interviewed Butler in April shortly after he was hired to manage the service department at the 55-year-old Honda dealership, one of 31 rooftops owned by the Memphis-based Umansky Automotive Group in California, Mississippi, Tennessee, Virginia and Wisconsin. In the June issue of FOJ, he outlined the challenges he faced and presented a detailed game plan for reviving the moribund department.

Butler also agreed to provide an update on the department's condition in six months. The verdict? A big thumbs-up.

"We've made a lot of progress," says Butler about the department, which features 19 service bays and employs 11 line technicians, four express-lane technicians (one more than last April), six people in the parts department and four service advisers (one more than before).

"The right processes are in place and the numbers are right," he says. "Everyone is in tune with one another, too. So we have fewer breakdowns in communication."

Butler is fond of saying numbers don't lie, and the figures he cites tell a compelling recovery story.

For starters, repair orders have approximately doubled to 40-plus compared with the low 20s in April, he says.

"Our goal is 60 to 70 ROs per day and we have the capacity to do that," he says. "So there's still room for improvement there."

In addition, revenue per repair order nearly tripled to $300 compared with the low $100s when Butler came on board. Moreover, the department's gross service and parts revenue jumped around 100 percent to about $325,000 a month from around $160,000 a month. And net revenue, which was in the red to the tune of $25,000 a month, now consistently totals between $50,000 and $75,000 a month, he says.

Drilling even deeper into the numbers, Butler notes the department's combined (both customer-pay and warranty work) effective labor rate — a measure of the profit a service department generates per billed hour — stands at a robust $136. That's a 60 percent increase compared with the department's $85 effective labor rate last April, Butler says.

At the time, Butler determined the department's "door rates" were dramatically underpriced compared to local competitors, a problem he moved quickly to resolve.

"The higher [effective labor rate] is a healthy sign that we're priced competitively in the marketplace but not overpriced to the point that we're driving customers away," Butler says, noting the department routinely price shops its competitors. "For most stores today, that cost is around $100 per labor hour. So if your [effective labor rate is] under $100, you're losing money."

The department's fixed absorption rate also rose significantly to 90 percent from 60 percent. That's well above the industry average of about 70 percent, he says.

"Our goal is 100 percent, which would mean that fixed ops is covering all of the dealership's expenses leaving sales revenue as pure profit," Butler notes.

Butler credits more robust marketing efforts for the improved financials. Driving more traffic to the store was a critical first step that's been accomplished via a much improved service department presence on the store's website and a direct-mail campaign aimed at customers who haven't come in for service in more than a year.

FixedOPS Marketing revamped the dealership's website, which used to have one web page devoted to service.

"It basically said that we sell tires," Butler says.

Now the website includes more than 20 pages devoted to the service department, plus a banner on the website's home page that promotes a rotation of special service deals, Butler says.

"Almost every time you click on something, a new page opens up," he says. "You see interactive videos and coupons. For $699 a month, I get full reporting on things such as overall visits, unique visits and how many visitors book appointments."

Butler says the service web pages attract between 300 and 400 unique visitors a month. And an average of 33 percent of those visitors book service appointments — an excellent hit rate, he says.

Furthermore, prices in the mailers match the prices on the website, a small but important detail, he notes.

"It's all about uniformity and transparency when it comes to pricing," Butler says.

Other factors have contributed to the department's improved financial health.

For example, everyone in the department now has a copy of the department's operation codes, which tell technicians exactly what needs to be repaired and informs employees in the parts department what parts are required to make those repairs. To reduce confusion and complexity that leads to errors, Butler pared down the number of operation codes to 60 from 300.

Before, technicians often entered the wrong codes. That can result in insufficient labor hours being charged, which decreases revenue. It also can create delays for customers.

"So we cleaned out the whole system to make communications clearer and more focused and minimize guesswork," he says.

Before some of the codes were just generic. For example, one code just indicated a check-engine light is on but didn't specify which one. Another one noted there was a service reminder, with no more details than that.

"Those kind of codes don't tell us anything," he says. "Now they tell us what we need to know."

Moreover, Butler says service advisers now follow stricter protocols for walkarounds. For example, they check each customer's history before arrival so the adviser knows what the customer needs ahead of time, whether it's an open recall or an oil change.

"You look a lot more professional and competent when you're prepared for your guest's arrival," he says.

Furthermore, advisers also follow a well-defined presentation regimen when they explain needed services or repairs, then let customers decide what they want to do.

"The answer is 'no' 100 percent of the time if you never ask," Butler notes. "But we're not a high-pressure up-seller. That's not how we roll."

In addition, the department's two express lanes (there was no express lane when Butler came on board) now are fully staffed with two, two-person teams, which also bolsters revenue.

"We have our ups and downs," Butler says, conceding there's still room for improvement. "But coming from nothing, it's going pretty well. We average about 20 express services a day."

Furthermore, Honda certified the operation as an elite express facility, which means it meets specific benchmarks, such as a 45-minute check-in-to-check-out time limit and a dedicated service adviser.

So what's the takeaway here for fixed ops directors in a similar situation?

"I think you simply have to look at things with a fresh eye every single day, as if you were a consultant, a trainer or a manager," Butler says, who's also now the fixed ops director at two recently purchased rooftops, Johnson City Acura and Johnson City Mazda. "Then I'd pick just one thing as a priority a day and get that done.

"And when you knock that one out, move on to the next highest priority," he continues. "If you get yourself spread out too thin with too many projects, you're never going to get anywhere."

Furthermore, Butler urges others to follow the KISS philosophy, as in Keep It Simple, Stupid.

"The key is to analyze the situation so you know what to fix, then set up training or processes to address those issues," he says. "But simple is better … you can overcomplicate things in a hurry, which really bogs things down."

Butler also emphasizes the journey to improved operations never is truly complete.

"It's about constant improvement — it never stops," he says. "There's always something that can be tweaked to make it a little better. The day you think you've got it all figured out is the day you start sliding backwards."