Fast Break - Creating a Customer-Centric Operating Philosophy for Automotive Service

Chapter 2

A Tougher Road Ahead

 

 

Fast breaks in basketball don’t happen if players are standing on their heels. 

That’s why coaches, in basketball or any other sport where reaction time and speed are critical factors, implore young players to stay on their toes. To be up and ready to move. All the time. 

I share this analogy because it’s fitting for the situation where today’s dealers and service leaders find themselves. I believe we are in the car business’s equivalent of a fast-break moment when it comes to adopting a customer-centric operating philosophy in fixed operations.

We have a choice. We have the option to either react to the moment, or it will pass.

Now, I consider myself a pretty even-keeled, level-headed person. 

In fact, I got my pilot’s license in part because flying a plane requires an ultimate degree of control. Even in dire, panic-prone situations, it’s the steady hand and mind that keeps the plane in the sky or gets it, and your passengers, safely back to ground.

In other words, I wouldn’t suggest that we are in a somewhat urgent moment for fixed operations if I didn’t truly believe the time to transition to a customer-centric operating philosophy is upon us.

This urgency is rooted in the current and emerging realities of the auto-retailing environment:

Reality: Dealers will expect better results than you’re delivering to ensure the overall health of their dealership investments.  

It’s no secret that margin compression on the variable side of your dealership is significant these days. The average gross margin for new-vehicle sales declined to 2.5 percent in 2017, from 3.3 percent in 2015 and a whopping 4.6 percent as recently as 2011, according to NADA data. On a net basis, most dealers now are losing money selling new vehicles.

Meanwhile, used-vehicle gross profits as a percentage of transaction prices continue to slide, down to an average 11.7 percent  in 2017 from 13.7 percent in 2011, according to NADA. 

And for the first time in the memories of anyone I know, the average retail net profit in used vehicles went negative in 2017, sliding to a -$2. Of course, one of the primary drivers for this result is that luxury brands miscalculated residual values of vehicles coming off lease, which forced dealers to buy them back for more than they could be sold at retail. 

Join those grim statistics to the fact that we’ve probably peaked on the sales side. Indeed, it looks like the industry is experiencing a soft landing, but we’re still going to be selling fewer vehicles and making less money as we do.

I suspect many dealers are viewing these financial stats with the same reaction as Scooby-Doo on a Saturday morning: “Ruh-roh.”

The bottom line is that dealers will, out of necessity, be leaning more heavily than ever on fixed operations to drive the financial results they expect from their stores. 

Reality: A different set of customer expectations: The financial pressures on dealerships are occurring at the same time as  the fundamental relationship between American consumers and the process of buying an automobile continues to shift.

For good reason, Americans have come to regard the car-buying experience on a par with getting teeth pulled on the list of unpleasant episodes in their lives — thanks to the time it takes to complete the purchase, the annoying persistence of price haggling, and other aspects of the transaction that spell aggravation, apprehension and tension for buyers.  

So, if there were “reverse bucket lists” of experiences that most Americans would want to avoid until the day they die, surely “dealing with the new-car-buying process” would be at or near the top of many lists.

The general distaste for the car-buying experience hasn’t been lost on a growing body of entrepreneurs. There are plenty of companies offering alternatives to the traditional car-buying experience. (Car vending machines are a neat gimmick.) 

Meanwhile, dealers are playing catch-up. After years of pooh-poohing or scoffing at the idea, dealers are now recognizing that a digitally driven sales process isn’t just something for the future, its time has arrived today.  

Consumers can access any number of vehicle-research sites and can browse inventory online. The dealer, OEM and third parties are integrating their processes—for example, the credit application is online and helps speed lending decisions; other portions of the F&I process have been moved online or streamlined to reduce customer wait times; test drives can be scheduled online; and you can even make deposits prior to stepping foot in the dealership. 

These advances in digital retailing lessen the Number One pain point of the vehicle purchase: time spent in the dealership. By blending traditional processes with online options, consumers can now tailor the purchasing process to their satisfaction. 

This digital evolution in sales signals a must-change moment for fixed operations. If the sales side of the dealership is embracing technology to better meet customer expectations, shouldn’t the same be true in service? Or, conversely, if your sales department still offers a 1980s or 1990s-era sales process, is it reasonable to expect that you’ll even see these customers in your service lanes?

Reality: Vehicles last longer and run better. On one hand, you might look at the time today’s consumers typically own their vehicles and see a wealth of opportunity. Dealers and their service departments, theoretically, ought to have more opportunities to engage and serve customers who are driving the vehicles they purchased from the dealership.  

But it’s not that simple. 

For starters, according to J.D. Power & Associates, vehicle quality has been steadily increasing for decades now: Cars break less often, so there are fewer needs for repairs. This is true across the industry, and today the few brands that are still considered marginal players nevertheless demonstrate very good fit, finish and reliability.

Also, while manufacturing quality has been steadily improving, OEMs have been able to design vehicles that need routine service far less often. Maintenance intervals have been steadily increasing over the last 15 years, so the good old, “3 months/3,000 miles” rule is long gone. 

Other factors keep our customers out of our service bays. For example, with some brands there is significant leasing, and those vehicles are serviced a little less often because owners don’t have the long-term health of the vehicle in mind. 

It also looks like recall activity is expected to drop slightly compared with the last couple of years, when recall visits to dealerships spiked due to some major campaigns. Consider that the ignition-switch and Takata air-bag issues alone affected millions of vehicles.

Also, we’ll be seeing more over-the-air updates of software, of the kind that Tesla has pioneered—one less reason for a vehicle owner to come back to you. 

It’s also true that electric vehicles will gain more share and you don’t have to look much beyond a Tesla owner’s manual to understand what it means for factory-recommended maintenance intervals. The manual recommends maintenance for a Tesla. There aren’t many pages in that manual. 

You probably already know why electric vehicles need fewer technician touch points. These vehicles have an estimated 70 percent fewer moving parts than their gasoline-powered counterparts.

Add it up, and nowadays, I think we can figure on seeing a vehicle owner in our service departments only once every 10,000 to 12,000 miles, which on average is about once per year. 

Reality: Stiffer competition. Already, dealers have faced stiffer competition from aftermarket service providers including Pep Boys, Midas and the like.

I think it’s fair to say that our traditional, transaction-centric operating philosophy has helped the loss of business to what some of you consider aftermarket interlopers. Part of the story also owes to the rise of online options that help vehicle owners easily research and find non-dealership service providers. 

Whatever the cause, I think we can all agree the aftermarket providers have hurt dealers badly in two ways. 

First, over the decades, they have done an incredibly good job of convincing consumers that OEM dealers are unnecessarily expensive. Even though most research shows that dealers have become very cost-competitive, that’s not the story these chains tell the vehicle-owning public. And, of course, many American consumers have bought the story.

The other thing these chains have done, more recently, is very smart as well: They’ve shed the specialization that used to define their marketplaces and mostly have become generalists that compete more effectively with car dealers for service work. For example, 44 percent of independent-service-center profits come from tire mounting and balancing, brake service, chassis and suspension work, and not from their core products and services, according to Modern Tire Dealer magazine.

Play a quick name-association game and you’ll understand what I mean. I’ll name a brand, and immediately a specific type of service will come to your mind—the same one that always used to come to consumers’ minds. Midas and Meineke? Mufflers. Firestone and Goodyear? Of course, tires. 

But now, these chains and others have evolved into...