How your dealership can avoid leaving profits on the table

What happens next?

That may depend on your most-profitable department.

As new-vehicle sales appear to be slipping in 2017 for the first time in years – and prospects for more of the same next year – a brighter spotlight than normal shines on the service department.

That department already accounts for about 44 percent of the average dealer’s profit, according to the National Automobile Dealers Association (NADA) trade group, and yet “when it comes to maintenance and repair services, dealerships are leaving money on the table.”

At stake are thousands of dollars in revenue (and potential profits) over the life of every vehicle if a customer does not return to your dealership for service and parts to maintain his/her vehicle, based on cost-of-ownership calculations by Edmunds.com and Popular Mechanics.

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And in most cases they don’t return.

Only 30 percent of total vehicle-service visits occur at a dealership, NADA reported, with 50 percent going to general repair and service stations, quick lube and tire stores.

That’s a lot of lost revenue and unrealized profit for dealerships when clouds are gathering.

So why does this happen?

The top five reasons service customers don’t go to a dealership are perceptions that:

  1. Total cost will not be reasonable.
  2. Dealerships will overcharge.
  3. Labor charges will be unreasonable.
  4. Parts charges will be unreasonable.
  5. Distance/location are not convenient.

But giving customers fewer reasons to go elsewhere could provide an important advantage to dealerships when times get tougher because of declining new-vehicle sales.

“While perceived lack of value is a top reason for not using a dealership for maintenance and repair services, actual spend[ing] for services such as an oil change suggest that dealership pricing is competitive with third-party providers,” says the trade association.

And that means “dealers have an opportunity to compete with independent service providers by offering and promoting competitive pricing and price-match guarantees, while focusing on advertising messages about high-quality service, parts and certified technicians.”

While not every business condition is under your control, you still can affect what happens next.

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