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Jackie Charniga, Automotive News: Hi everyone, this is Jackie Charniga with Automotive News, and welcome to the All Ears Podcast. This podcast is sponsored by Ally Financial and is produced by the Automotive News Content Studio. In each episode, we delve into topics important to executives in automotive retailing. We tap Ally's leaders to offer actionable solutions for dealers and others to successfully navigate transformational changes in the industry. Today, we catch up with Robert Brooks, senior fixed operations product manager at Ally Financial, to discuss how dealerships can get the most and maybe more than they expected out of their fixed ops departments. We discuss methods dealerships use to gauge success in fixed operations and remain competitive. We also talk about methods dealerships can employ to attract and retain top service talent and otherwise manage the ongoing labor shortage in the dealership's most profitable department. And finally, we discuss ways for dealerships to stay ahead on electric vehicle deployment and overall best practices for the service department. Robert, thank you so much for joining me on the All Ears podcast. How are you?
Robert Brooks, Ally: I'm wonderful, and you?
JC: I'm great. As we know, the fixed UPS department is one of the most consistently profitable dealership departments. What are some methods dealerships can use to assess how well their fixed ops department is doing?
RB: Well, each department has key metrics that are really important when it comes to evaluating how the department's performing. The metrics are important when looked at individually but the the real benefit comes from understanding what are the drivers of those metrics? An example would be fixed absorption or fixed coverage. If you determine it's low for your store compared to industry guides, you really need to understand what the driving factors are in that calculation to understand what that number means. Are the fixed grosses too low? And if so, which ones and and why? Or are the total dealership expenses out of line? Those are the the two numbers that make up that single metric. So to understand what the driving factors are is really important in understanding the meaningfulness of what that number is. There's also a lot of information on DMS reports, the dealer management system reports, whether it's the Advisor Performance Report or Counterment report, you've got hours per R.O., effective labor rate, gross profit percentages, so many metrics actually where you can get analysis paralysis. So you really have to decide what's important and looking at what drives the numbers will help you focus on changes that can be made to make a difference.
JC: How are dealerships comparing profits today versus pre-COVID levels?
RB: Well, we're really with the COVID era that we're in, dealers are all over the board. Dealers that do business with Ally, some are having record years. Others are struggling and some of that's geographical, some of it is just the course of business, maybe how bad COVID is in their market area. But typically, from what I've seen, dealers have done very well in this cold COVID environment. Back 18 months ago, when it was all brand new to all of us, people were struggling, dealers were struggling and employees were struggling as we came out of that, dealers adapted. They did a great job in adapting to an environment that was customer friendly, social distance and have done very well. And again, dealers have had many dealers have had record years or close to it.
JC: We all know that maximizing a customer's lifetime value depends not just on selling a vehicle, but also on bringing the customer back to the dealership for service needs. How well are dealerships competing for those service dollars?
RB: Well really, to compete for the service dollars, it really falls into a customer service category. Customers want to feel important. They want to feel valued by the dealership, they want to feel like they're getting value from the dealership. So the exceptional customer service concept is as important as ever in the the marketing. Obviously, you can't fix a car online or over the phone, so the customers at some point have to get the vehicles to the service departments or the dealers have to adapt and go get the cars from the customers. And we've seen a lot of that in the industry where they have pickup and delivery service in order to meet the customer's needs and provide that extra level of service so the customer doesn't have to come into the service department. Non-contact service visits when it comes to the customer have become commonplace.
JC: Are we seeing any improvement in the industry's ongoing concerns about the technician shortage?
RB: A quick answer is no. Really haven't. We have a big technician base that's aging out, hitting retirement age and the incoming technicians through trade schools or through high school programs, apprentice programs, are highly sought after by both independents and dealers alike. Many manufacturers have apprenticeship programs or trade school programs that they promote, but the number of young people that are entering those programs is significantly down and the technicians shortage continues to grow. So at this point, I haven't seen a big change in that trend of the technician shortage.
JC: What's the recipe for a happy service technician? What sort of practices or policies can dealerships employ to produce that environment?
RB: One of the same things that makes a happy customer is feeling appreciated. Technicians want to know that they're valued. They want to be well compensated as everybody does, but they want to feel appreciated. They want to feel that they have a voice. They want continuous training. And so if we can work on employee satisfaction being creative at times as an employer, sometimes we need to create incentive programs. We need to create wellness programs, if you will, to make sure our employees have what they need to be successful. I have dealers that we have worked with that have been very creative in tool programs or tuition reimbursement programs for young people coming out of the trade schools. So really, you have to be creative in today's environment to attract and maintain a quality technician base.
JC: Yeah, the tuition thing is interesting. I've heard of dealerships just buying Xboxes and making employee lounges and things like that, but I'm interested in the sort of career path and trajectory of service workers, about how can dealerships make incoming employees want to stay for the long haul and not, you know, defect to a nearby dealership that might be paying them more?
RB: And it goes back to my previous comment of they need to feel appreciated. They need to feel that the dealer and the management team cares about the employees and provides those unique benefits in some cases that meet their needs. Of course, every person's needs are different than individual to them. But being creative and being able to have candid conversations and identify those needs and then fill those needs, if it seems reasonable, then there's no reason that we shouldn't be able to create something to fill those needs.
JC: We'll be right back after this short break.
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JC: So I'd love to talk a little bit more about electric vehicles. You know, dealerships are preparing for more electric vehicles as automakers make more announcements. You know, we've already seen more vehicles launch and companies like General Motors and Ford have even more down the pike. I'm curious about your perspective of how prepared are dealerships today for the electric vehicles that have been announced?
RB: I think they're fairly well prepared at this point. There's already electric vehicles and many of the service departments today, instead of internal combustion engines with conventional transmissions, electric vehicles have an electric motor. Many of the other components are essentially the same. You still have brakes and suspension, power seats, windows and the normal equipment that you'd see today. So there will still be plenty of "traditional work" to be done on an electric vehicle. The computer systems is where the expertize of the technician will have to continue to grow the specialty equipment to diagnose and service some of these vehicles, and a lot of that's dictated by the manufacturer and supplied to the dealer at the dealer's expense, but by the manufacturer. So we just need to continue to grow that technical aspect of the business from the the technician training. But the vehicles are already in the service department in many, many cases.
JC: Can you describe a little bit of what that looks like compared to a traditional vehicle in terms of the fixed ops labor and the profits? Do they have vehicles for longer? What sort of changes in the workload for technicians?
RB: We really don't know the trade cycle of the electric vehicles yet, because there's not enough vehicles on the road to establish any meaningful trends. I would suspect that it will be similar to a conventional vehicle. Dealers tend to retain the majority of their customer business in the first three to five years. I think, and this is my personal opinion, but I think that customers, especially early on, will be very concerned with such things as battery life and warranty, things of that nature, and their trade cycle might even shorten slightly.
JC: So I love to ask a quick question about F&I products. So as much as dealerships are concerned about losing profitability in the service department with electric vehicles, there's also the opportunity to sell specific F&I products for the parts of a vehicle that are subject to the most wear and tear. So I'm curious about that side of the business if in terms of when there's work to be done in an electric vehicle, you mentioned some of the work is similar from other vehicle types. Are there similar product opportunities to be sold from the F&I side on electric cars that had the Service Bay?
RB: Absolutely. I believe that the vehicle service contract business will continue to be a F&I product that's actively sold. The coverages will change with an electric vehicle. The manufacturer warranties on things such as the batteries will continue to evolve and be different lengths as far as the the amount of warranty, but that's true today in the internal combustion engine, is that some manufacturers do a five year, 60,000 mile powertrain warranty. Some do a ten year, 100. Depends on the the product. So they vehicle the VSC products, the vehicle service contract products, will continue to be sold in the F&I office as they currently are. It'll just be the coverages that change and adapt.
JC: I'm aware that you're a bit of a veteran on the fixed ops side of the business. Are there any best practices in fixed ups that sort of hold true regardless of the environment or marketplace?
RB: Well, from my perspective, investing in training and development of your people, as a dealer, is a key component. I touched on earlier, one of my favorite quotes is from Henry Ford Senior, and he said, "The only thing worse than training your employees and having them leave is not training them and having them stay." And I think that says a lot as we have to invest as an industry in our people. We have to attract the top level customer service people. Employees want to feel valued, customers want to feel valued. And in fixed ops, many times we don't provide the same training level that salespeople get. Service advisors generally talk to more people in a week, or even sometimes a day, than a salesperson will in an entire month. But salespeople get sales training, product training, F&I training many times, whereas service advisors don't have that opportunity on a regular basis. So I think it's really important that we look at who has the most customer contact, provide them with sales training, with customer service training. Again, from my experience, dealership service departments tend to dictate a process to the customer because our process works for us. But does it work for the customer? And I really like the concept of inviting customers into our process, make them part of that. And if we can make them part of our process, they feel valued. They don't feel that they're being sold anything or pushed into anything. They feel a part of the process. And when that happens, good things happen. There's a big increase in customer retention. Employees feel better about themselves because they have the tools to interact with the customers. We sell additional parts and additional labor sales and future vehicle sales. In a 2016 Cox Automotive study, 85 percent of the customers said the service experience influenced their next vehicle purchase. That's strong. We really need to do an exceptional job of customer service in the fixed operation.
JC: Finally, I always end with a forward-looking or crystal ball question about the changing nature of the dealership space. You know, we've been talking a lot in the past years about perhaps with more online services having smaller showrooms or a sort of different layout of the dealership. What do you predict in the next five to 10 years we might see in the service department? Perhaps fewer bays because of electric vehicles? Perhaps different equipment? What does the future of that department look like to you?
RB: There will definitely be additional equipment that's going to be required because of electric vehicles, including lifts, electric vehicles are heavy because of the batteries, so that's going to create a demand for that type of equipment. As far as fewer bays. I don't think you're going to see that in new dealership construction anytime soon. Again, there's a lot of typical service work that's going to be done regardless of what propels the vehicle, whether it's electric or conventional. There's also still a lot of conventional vehicles, internal combustion engines out there, and they will continue to be out there for the next 10 to 15 years as probably the dominant vehicle on the road, and that will slowly change as electric vehicles become more and more prevalent. But I don't see dealership service departments downsizing significantly in the next five to 10 years. Beyond that, it's kind of anybody's guess.
JC: All right. Well, thank you, Robert, so much for your time.
RB: Absolutely, thank you.
JC: That's it for this episode of the All Ears podcast. On behalf of Ally and the Automotive News Content Studio, thanks for listening.