How to Achieve and Maintain 100%
Service Absorption!
A strategic plan drawn from case studies of your peer
dealerships regularly exceeding 100% Service Absorption.
Find out how they get it done!
With
Steve Nickelsen, CEO of Nickelsen Partners
And
Steve Probst, President of Nickelsen Partners, LLC
Moderated by
Mike Bowers, Executive Editor of DealersEdge
Steve Nickelsen, Nickelsen Partners
Steve Nickelsen, CEO of Nickelsen Partners LLC, has focused on improving dealership net
profit for the past 25 years. In his personal consulting to dealers and as leader of other
consultants, he has worked with more than 8,000 dealers, general managers, and sales
managers to improve their businesses, and he has trained more than 20,000 automotive
salespeople. His clients include some of the most profitable automotive organizations in
North America, as well as some with among the highest customer satisfaction and retention.
He is a frequent speaker for companies and conventions related to the automotive industry,
and he has been the highest-rated speaker at NADA. In addition to working directly with car
dealers, he has worked with OEMs and importers to help them improve the sales,
profitability, effectiveness, and satisfaction of their dealer bodies.
Examples of his work include:
• For a group of domestic-brand dealerships, helping them rise from average to outstanding
sales performance (including making their largest store the #12 Chevrolet store in the U.S.
in sales) by coaching the dealer and his management team
• For a dealer with both import and domestic stores, enabling the dealer to achieve greater
profitability -- and happiness -- by helping him define and implement consistent, effective
processes for major dealership activities, particularly the vehicle selling process, thereby
creating an earned confidence that the operations were stable and under control.
• For a Canadian importer, helping them achieve month-over-month sales growth in an
otherwise declining market, by creating and conducting a series of targeted performance
workshops.
• For a distributor of Toyota vehicles, helping them grow their market share by more than
15% over two years, through work with the distributor and directly with their dealers.
www.nickelsenpartners.com
How to Achieve and Maintain
100% Service Absorption
A Strategic Plan Drawn from Case
Studies of Peer Dealerships with
Close to 100% Service Absorption
A DealersEdge® webinar with
Steve Nickelsen
CEO of Nickelsen Partners, LLC
with the assistance of
Steve Probst
President of Nickelsen Partners, LLC
www.nickelsenpartners.com
Your Presenter Today: Steve Nickelsen
CEO of Nickelsen Partners, LLC
Nickelsen Partners, LLC is in the business of increasing
dealership profits. We do that through:
– Identifying, creating, and sharing best-practice ideas
– Working closely with our clients to implement those ideas
through consistent processes, people development,
appropriate technology, and supportive incentives
– Providing focused tools to support execution and enable
the management of those processes
In that course of that work, we have worked with more
than 8,000 dealers, general managers, and sales
managers and have trained more than 20,000
salespeople.
Learn more at www.nickelsenpartners.com.
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Today’s Agenda
Measuring service absorption
What are the right metrics?
What the best have in common
Overall case study: Preferred
Automotive Collection
Mini case studies
Putting it all together: the “plan”
Execution and maintaining
momentum
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Measuring Service Absorption
Service absorption compares how much profit
you generate in Service, Parts, and Body Shop
with how much it costs to keep the dealership
open.
– High absorption (90%+): Fixed Operations covers
the costs for the business, and all profits from
Sales go straight to the bottom line.
– Low absorption: You’re very vulnerable to any
downturn in sales, and too much of your profits
from Sales are needed to cover the dealership’s
overhead costs.
There is not only one correct formula.
– Different OEMs and experts break out costs
differently and use different formulas.
– Instead of getting hung up on differences in
calculating service absorption, focus on improving
it.
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Measuring Service Absorption
GM Example
GM puts “Fixed Coverage” near the bottom of Page 6 of the
financial statement.
All Expenses
– It divides Fixed Operations Gross Profit …
– … by Total Fixed Overhead expense
Gross Profit
Total
Variable Operations
Fixed Operations
Total Variable Expense
Total Fixed Overhead
Net Profit
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Measuring Service Absorption:
What It Means
With 100% service absorption, a dealership
that had variable selling expenses equal to
its variable gross profit would be at breakeven. Fixed operations would cover all the
dealership’s “fixed” costs.
Service absorption is not a perfect
measurement, but it is a good indicator.
Since we can all agree that high service
absorption is good, let’s now focus on how
to get there.
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What Are the Right Metrics?
# R.O.s
■ First-visit retention
■ Ongoing retention
■ Conquesting
x
Average
GP
■ Good upselling?
■ Poor retention for
routine maintenance?
■ Pricing that is too high
to attract and retain
customers?
=
Total GP
■ Manage this and
expenses to
increase absorption
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What Are the Right Metrics?
# R.O.s
■ First-visit retention
■ Ongoing retention
■ Conquesting
x
Average
GP
■ Good upselling?
■ Poor retention for
routine maintenance?
■ Pricing that is too high
to attract and retain
customers?
=
Total GP
■ Manage this and
expenses to
increase absorption
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What the Best Have in Common
A “mindset”
A marketing plan for service
A focus on retaining customers
Expenses kept at the right levels
– Everybody knows the objective – 100%
– We do it for sales, but less for service
– Know why they defect
– Be SURE you’re measuring the right things
– The most profitable dealers have changed the
metrics, i.e. from hours per R.O. to just total R.O.s
and total GP
“Velocity” strategy with used cars to increase
internal parts and service gross profit
A focus on creating good processes and
executing them consistently
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Case Study – Preferred Automotive Collection
Joe Betten, Dealer
– Goal is to spend 180 days
a year “on vacation”
– Lives in Grand Haven
Michigan but enjoys
Marco Island and
Scottsdale
– Avid horseman
– Daughter Amy is the
Executive Manager
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Case Study – Preferred Auto Collection
Locations (Western Michigan)
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Case Study – Preferred Automotive Collection
Actual Service Absorption Results
One Year Ago
Today
Change
Preferred Chrysler-Jeep-Dodge
75%
86%
+11%
Preferred Ford (no body shop)
67%
85%
+18%
Preferred Buick-GMC
81%
98%
+17%
Toyota of Grand Rapids (no body shop)
87%
98%
+11%
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Case Study – Preferred Automotive Collection
The Mindset: Everyone Knows the Goal
One Year Ago
Today
Next Year
Preferred Chrysler-Jeep-Dodge
75%
86%
95%
Preferred Ford (no body shop)
67%
85%
98%
Preferred Buick-GMC
81%
98%
108%
Toyota of Grand Rapids (no body shop)
87%
98%
110%
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Case Study – Preferred Automotive Collection
The Plan
Created a plan on how to achieve the
100% service absorption objective
– Get more fixed gross
– Reduce costs throughout the dealership
Met with managers and told them the
objective
– “We are going to reduce our dependency on
vehicle sales.”
– Everyone knows – not just fixed operations
Dissected the components
– What can we control?
– Where are we hurting ourselves? Are we
hurting retention by being too aggressive on
price? (This could be as true in F&I as in
Service.)
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Case Study – Preferred Automotive Collection
Staffing
Make sure you have enough staff
to accomplish the goal.
– What is the right number of techs?
How many writers?
– You can’t grow without the people
to handle the increase.
– Preferred’s Toyota of Grand Rapids
store just added 2 Service Advisors
and 5 Technicians to handle the
needed sales for 100%+.
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Case Study – Preferred Automotive Collection
Align Incentives with Promotions
Create incentives for every
promotion.
– $8-9k in domestic; $10k in import
Target the incentives at Service
Advisors or Technicians,
whichever is more appropriate
for that specific promotion.
– Reward the technicians for quality
inspections.
– At Preferred, good inspection with
an upsell earns the chance to win
a $300 debit card.
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Case Study – Preferred Automotive Collection
Toyota of Grand Rapids
Started quick service at Toyota for
those buying new cars and under
the TAC program.
– Gold members during the 2 years
of coverage
– Promoted to platinum level after
the coverage expires
– Goal is to retain at least 90% of TAC
customers after expires
Just started going after the 5,800
former customers who no longer
service with us
– 25 years of history
– Using BDC to reach out to them
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Case Study – Preferred
Automotive Collection: Marketing
Do at least quarterly service, parts, and
body shop promotions
– Extending the 3rd quarter tires and battery
promotion into the 4th quarter
– Have used direct mail for building business for 3
years
– Whole staff has to be “ginned up” and energized
– Today “Larry” gets free oil changes – keep it fun
The most effective promotions target our
own customers.
– However, Preferred has also had some success
reaching for customers of competitors.
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Case Study – Preferred Automotive Collection
Marketing
Decide who you are going to
be
– $9.95 or $14.95 oil changes,
tires at cost, batteries for
$59.00 installed, pit passes
etc.
Discounted oil changes
– “We LOVE this” – despite the
minor irritations or the 30%
that never buy anything else.
– Average over $50 per R.O.
– Offer items less than $20:
RainX, wipers, etc.
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Case Study – Preferred Automotive Collection
Marketing
The “Pit Pass”
– Another reason to do business with us
– Washer fluid and air for their tires “whenever they want it”
– A big contrast with the old approach: “We spend $200 to $300 in
advertising to attract a customer, but won’t spend a dollar for a donut to
keep them coming back.”
– “We have people in our service waiting areas who don’t have a car in
service.”
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Case Study – Preferred Automotive Collection
Retention and “The Circle of Life”
Showroom
Your
Competitor
No
Yes
Last Service
before repurchase
Buy
Or Lease
Service
Vehicles
1st Service
6th Service
5th Service
2nd Service
4th Service
3rd Service
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Case Study – Preferred Automotive Collection
Focus on Customer Retention
Measure the retention of
your current customers –
both new and used.
When someone defects:
– Find out the reason why
– Try to get them back into
the family
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Case Study – Preferred Automotive Collection
Focus on Customer Retention
What Preferred Heard from
Defecting Service Customers
“I’m pretty honked off that you raised
my oil change to $14.95. It should
have been $9.95.”
“It just takes too long.”
“You charge too much for everything.”
What Preferred Did with
What They Heard
Preferred had raised its price for oil
changes from $9.95 to $14.95. They
just decided to drop the price back to
$9.95.
Preferred changed its processes so
that a team of 3-4 technicians gets
vehicles done more quickly.
For Toyota customers with
complimentary 2-year maintenance,
Preferred added one free oil change
after that program expires.
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Case Study – Preferred Automotive Collection
Retention and “The Circle of Life”: Results
Customer Retention for Service – New and Used
High 90s
100%
80%
60%
75%
75%
60%
40%
20%
0%
GM Off-Site
Lot (Used)
GM (Main Lot)
Ford
Toyota Auto
Care
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Case Study – Preferred Automotive Collection
One-on-Ones with Service Advisors: The Problem
Not sure that they were offering all
needed and scheduled maintenance to
every customer
– Also not sure they were presenting them
in a way that made the most sense or was
the most persuasive
Too many single-line repair orders
Too much “declined service”
Not discussing the “next appointment”
with every customer
Not tracking customer pay statistics for
each advisor well enough
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Case Study – Preferred Automotive Collection
One-on-Ones with Service Advisors: The Solution
Every morning, the Service Director sits with
each Advisor to review every repair order
from the previous day.
– Very similar to the “Save-A-Deal” meeting in Sales
– General Manager attends 2-3 times/week
– 10-15 minutes starting at 10 a.m.
– Use “Repair Order Analysis” from ADP
Was all needed or scheduled maintenance
was performed or offered?
Review “Declined Services”
– Track with a “labor op” entered when service is
declined
– Measure each Service Advisor against a goal and
the shop average
Added a line to the R.O. that tells customers
when their next appointment is scheduled
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Case Study – Preferred Automotive Collection
One-on-Ones with Service Advisors: Results
Much better documentation
Eliminated “excuses” for not
performing at the highest levels
Reduced single-line repair orders
by 9% in the first month
– Generated $8,000 additional gross
profit in the first month
Working on another 10-12%
reduction in single-line repair
orders or denied work
– Worth an additional $8,000$12,000 gross profit
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Case Study – Preferred Automotive Collection
One-on-Ones with Service Advisors: A Tool
This is an
example of a
spreadsheet
that can be
used for these
one-on-one
R.O. reviews.
– Each row is
an R.O.
– It is just a
checklist for
verifying
what is
being done.
Customer Name
Advisor
RO Number Rec'd Maint
Customer
Signature
Inspection
E-Mail
Address
Tires
Tires Under
Tires Sold
Measured
4/32nds
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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Case Study – Preferred Automotive Collection
Process Measurement and Management
Measure the results and make
adjustments if you are not on
track.
– Preferred uses ACAR to generate
detailed reports with benchmarks
Monthly ACAR meetings in person at
each store
Discussions about the current state
and improvement opportunities
www.acarreport.com
– Also review daily reports on KPIs (Key
Performance Indicators)
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Case Study – Preferred Automotive Collection
Process Measurement and Management
Preferred also uses N-DOTS
(Nickelsen Dealership
Operations Toolkit) to track
performance by Service
Advisor.
– This shows real data from a
portion of one report – not all
lines, total for all Service
Advisors.
– Note that Preferred generates
high Service Absorption through
lots of R.O.s, NOT through high
hours per R.O.
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Case Study – Preferred Automotive Collection
Process Measurement and Management
This expanded view
shows the detail for
three of their Service
Advisors as well as the
total.
A
B
C
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MINI CASE STUDIES
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Mini Case Study #1 – Jon Lancaster Toyota
Tire Sales and Quick Lube
Focus on tire sales
– Selling over
80/day
– Website is set up
for ease of
purchase
Built a “quick
lube” across the
street
– Does 100 CP quick
lubes/day
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Mini Case Study #2 – Romain Automotive Group
Adding Evening Service
Added evening service (until 11:00)
and Saturday service (8:00 – 4:00)
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Mini Case Study #2 – Romain Automotive Group
Tire Displays and Good-Better-Best Offerings
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Mini Case Study #2 – Romain Automotive Group
Signs to Attract Service Customers
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Mini Case Study #3 – Mike Patton Auto Family
Increasing Customer Count
Lowered quick lubes to $16.88
– Gross profits went from $170k to $290k
Recently invested in waiting areas in
all dealerships
If they take extra snacks or sodas –
we offer to help them
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Mini Case Study #4 – Tom Gill Chevrolet
Building a Café
Café supports both service and
sales customers
Some dealers outsource café
management to achieve break-even
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Mini Case Study #5 – Greenwood Chevrolet
Outsourcing Service Retention
Greenwood Chevrolet uses
Performance Administration
to provide prepaid
maintenance services to its
new-vehicle buyers.
– Creates customer habit of
coming to dealership for
service
– Triple number of ROs/customer
in first year of ownership
– www.performanceadmin.com
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Mini Case Study #6 – Tom Kelley Auto Group
Service Walk-Around with the Customer
In 2009, Kelley started having its Service Advisors do a
comprehensive walk-around with the customer.
Within one week, hours per R.O. increased by 0.45!
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Mini Case Study #7
Rerouting Incoming Calls to Service Advisors: Process
All incoming calls go to the receptionist,
who routes the calls.
– Sales calls go to Sales
– Office calls go to Office
– But Service calls get asked another question!
For Service calls:
– Appointment calls go to appointment setter
during peak periods
– Status calls or other information requests go to
the Service Advisor
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Mini Case Study #7
Rerouting Incoming Calls to Service Advisors: Process
The receptionist logs every call.
– At first, the GM, Service Manager, and Service
Advisors reviewed the log weekly.
– Each Service Advisor learns how many calls were
taken for him.
– If there are too many incoming “status” calls, the
Service Advisor is coached to keep customers better
informed.
– Appointment calls were analyzed to do a better job
of planning dispatching.
– Now that the process is stable, the call log reviews
are done every six months.
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Mini Case Study #7
Rerouting Incoming Calls to Service Advisors: Results
Incoming calls to Service Advisors dropped by more
than half.
– 63% of incoming calls were for appointments, which were
rerouted.
– Most of the remaining calls were status calls that are no
longer happening because the Service Advisors are calling the
customers proactively.
Several customer have remarked on how much better it
is talking to a Service Advisor without constantly being
interrupted by incoming calls.
Productivity
– Before: 3 Service Advisors each taking 30-35 calls/day.
Average time with each service-drive customer was 8
minutes.
– After: Service Advisors each take 12-15 calls/day. Average
time with each service-drive customer is 13 minutes.
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Putting It All Together – The “Plan”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Do a great
write-up
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
Do a great
service
delivery
Follow up as
needed
Monitor and
manage
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Putting It All Together – The “Plan”
Before Drop-Off During Delivery
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Do a great
write-up
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
Do a great
service
delivery
After
Follow up as
needed
Monitor and
manage
Page 47
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Putting It All Together – The “Plan”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
■ What services can you offer your customers?
■ How can you “package” those to emphasize value?
■ How well do they line up with what customers are going to
see recommended in their service manuals and on-line?
■ Are they priced competitively? Is that obvious to the
customer?
Attract
conquest
customers
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Putting It All Together – The “Plan”
Service Menu from H&H Chevrolet
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
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Putting It All Together – The “Plan”
Service Menu from H&H Chevrolet
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
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Putting It All Together – The “Plan”
An On-Line Service Menu from Lakeland
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
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Putting It All Together – The “Plan”
Another Service Menu
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
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Putting It All Together – The “Plan”
Another Service Menu
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Page 53
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Putting It All Together – The “Plan”
A Service Menu That Explains “What” …
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Page 54
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Putting It All Together – The “Plan”
A Service Menu That Explains “What” … and “Why”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Page 55
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Putting It All Together – The “Plan”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
■ Do a service tour during the sales process
■ Schedule the first service appointment during vehicle
delivery
■ Remind them of the first appointment ahead of time: call,
text, e-mail, or mail
■ Monitor and manage first-visit retention – overall, by
salesperson, and by whoever does delivery
■ Offer free oil changes to recent vehicle buyers?
■ Offer a prepaid maintenance program?
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Putting It All Together – The “Plan”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
■ Schedule the next maintenance appointment during service
delivery
■ Follow up on missed appointments – identify dissatisfaction
issues so you can work on them
■ Use marketing programs (e.g., direct mail) that have worked
well for you or other dealers
■ Offer and promote simple incentives to return – unlimited free
washer fluid refills, unlimited free nitrogen tire refills, etc.
Page 57
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Putting It All Together – The “Plan”
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
■ Use marketing programs (e.g., direct mail) that have worked
well for you or other dealers
■ Talk with customers about servicing their other-make vehicles
■ Monitor your on-line reputation
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Putting It All Together – The “Plan”
On-Line Reputations Affect Conquests
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
■ This review is for
Preferred
Automotive
Collection’s
Toyota of Grand
Rapids store, on
dealerrater.com.
■ Reviews like this
may attract
conquest
customers.
■ Poor reviews
definitely drive
prospective
customers away.
Page 59
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Putting It All Together – The “Plan”
Improving On-Line Reputations
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
“Are you happy with your experience here today?”
[If yes] “Here is a list of several websites that customers
sometimes look at to decide whether they want to visit a
dealership. Would you mind writing a little review about
your experience here on one or two of them?”
Attract
conquest
customers
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Putting It All Together – The “Plan”
Do a great
write-up
■ Schedule appointments to allow enough time to
do this well
■ Service ADVISORS, not just Service Writers
■ Do full walk-around with the customer to build
value and earn trust
■ Review any declined work from prior visits
■ Recommend needed work, and provide alerts
about work that will be needed in the
foreseeable future
■ If the vehicle does not need anything beyond a
basic service, tell the customer that and
commend them for having a vehicle in great
shape
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Putting It All Together – The “Plan”
Provide a
great
experience
for waiting
customers
Communicate
during the
day
■ Have a pleasant, comfortable waiting area
where people can relax or work – must
have decent WIFI
■ Complimentary beverages and snacks
■ Ideally have both TV and a quiet working
area
■ Consider adding a café
Do a good job
in the shop
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Putting It All Together – The “Plan”
Service Customer Waiting Areas at Ken Ganley Nissan
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
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Putting It All Together – The “Plan”
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
■ Call/text/e-mail the customer when the
vehicle is ready and thoroughly review
what was done (particularly if a cashier
will be doing service delivery)
■ Call on additional work as soon as the
need is identified
■ Don’t make the customer call you
■ Never set up the customer to be surprised
when they come to pick up the car
■ Try to have the Service Advisor cashier the
R.O., not someone who does not
understand the R.O.
■ How does the customer prefer to be
communicated with?
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Putting It All Together – The “Plan”
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
■ Complete inspection on every vehicle
■ Clearly document complaint/cause/
correction for each R.O. line item so
customer can understand it at service
delivery
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Putting It All Together – The “Plan”
■ Review the R.O. in detail, so customer
understands that all his concerns were dealt
with effectively, what he paid for, and what he
received at no charge
■ Review the inspection sheet, so customer has
peace of mind
■ Discuss any future work needed
■ Schedule the next appointment
Do a great
service
delivery
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Putting It All Together – The “Plan”
■ Track customer satisfaction through surveys and manager calls
to customers – goal is understanding how to provide
consistently great service, not just getting good CSI numbers
■ Call all missed appointments to identify causes and reschedule
■ Call to set appointments for declined work or anticipated service
needs at the appropriate time
Follow up as
needed
Monitor and
manage
Page 67
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Putting It All Together – The “Plan”
■ Track R.O.s, total gross profit, and sales penetration by product
for each Service Advisor
■ Review R.O.s
— Completed inspection sheets attached?
— Evidence of appropriate upselling attempts (not too little,
but also not too much)?
— Clear work descriptions so customers can understand
value provided and have peace of mind?
■ Service Managers do one-on-ones with Service Advisors to
coach on increasing total gross profit and retention
■ Manage by walking around – Are effective walk-arounds
happening? Are service deliveries done well? Do customers
look happy, or do they look resigned?
Follow up as
needed
Monitor and
manage
Page 68
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Putting It All Together – The “Plan”
Notice How Much of This Is About Process
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Provide a
great
experience
for waiting
customers
Do a great
write-up
Communicate
during the
day
Follow up as
needed
Do a great
service
delivery
Monitor and
manage
Do a good job
in the shop
Page 69
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Execution and Maintaining Momentum
The Biggest Problem
Success depends on getting
the processes right – right
process, done consistently.
– Seven out of the ten elements in
the “plan” are processes.
– Most dealerships struggle to
execute the same process the
same way consistently.
Page 70
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Execution and Maintaining Momentum
Two Things That Matter
What you
plan to do
■ Your intentions
■ Your plan
x
How
consistently
you do it
■ How many of your
people actually follow
the plan
■ How often your
people follow the plan
■ What % of your
customers experience
the plan
=
Your results
■ Great if the plan and
the execution are good
■ Poor if either the plan
or the consistency is
inadequate
■ Initially good but then
declining unless
management stays on
top of execution
Page 71
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Execution and Maintaining Momentum
Who Is Accountable for Execution?
How are you going to
measure execution and hold
that person accountable?
How are they going to
measure execution and hold
others accountable?
Page 72
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Execution and Maintaining Momentum
Monitoring Key Performance Indicators (KPIs)
Page 73
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Execution and Maintaining Momentum
Are You Setting Yourself Up to Succeed or to Fail?
Do your people believe you are committed, or can they safely treat
this like another “flavor of the month”?
Do your people have the skills, time, and resources they need?
– If not, what are you going to do about that?
Are you going to focus on the right metrics? (Retention and R.O.
count, not $/R.O.)
Are you putting in place processes that make these good things
happen, or are you using processes that prevent them from
occurring?
Are you reviewing progress towards your Service Absorption goal at
every manager meeting?
– Are you holding your people accountable for following up on those
conversations?
Page 74
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Execution and Maintaining Momentum
Is the Problem Your People?
If you believe the problem is one person
but that your other managers are fine …
– You may be right.
If you believe that all your managers are a
problem …
– Odds are that their replacements will be a
problem, too.
– The fix for that is better processes plus
coaching for those managers.
– Their manager(s) may need coaching, too.
Page 75
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Execution and Maintaining Momentum
Make Time to Measure What’s Important
Regular review of KPIs – it’s the
dealer’s or GM’s responsibility to
determine what is on the
“dashboard”.
Knowing that the oil pressure is
low is of no value if that data is
not acted on.
Air traffic control keeps airplanes
on their flight plan. If they are
off, it’s “turn left to 050.”
Page 76
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Execution and Maintaining Momentum
How Do You Find the Time to Make It Happen?
“What fits your busy schedule better – exercising
one hour a day, or being dead 24 hours a day?”
Page 77
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Execution and Maintaining Momentum
Urgent vs. Important
Some of us need to
rethink our time
allocation if we’re
going to get the
important things done.
Page 78
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Execution and Maintaining Momentum
What We See at Dealerships
It is possible to generate these improvements without outside
help.
– But it is really hard, and success is rare.
Dealers typically get the most benefit from relying on their
own managers and supporting them with outside resources.
Advertising and website maintenance for service promotions
Targeted programs like prepaid maintenance
Data benchmarks and trend analysis
Assessing “the truth” about how well you are executing today
Best practices and ideas that have worked at other dealerships (and
knowledge about what has been tried less successfully)
– Coaching and skill-building for dealers, managers, and staff
–
–
–
–
–
Page 79
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Execution and Maintaining Momentum
Awareness
Accountability
Page 80
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Execution and Maintaining Momentum
Awareness
Accountability
Page 81
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Execution and Maintaining Momentum
Next Steps
Ask yourself now:
“What am I going to do
when I leave this
session?”
Ask yourself constantly:
“What’s the most
productive thing I could
do right now?”
Page 82
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Summary: Which of These Plan Elements Will Be
Different in Your Store within a Month or Two?
Create great
service
menus
Get the first
service visit
Bring back
repeat
customers
Attract
conquest
customers
Do a great
write-up
Provide a
great
experience
for waiting
customers
Communicate
during the
day
Do a good job
in the shop
Do a great
service
delivery
Follow up as
needed
Monitor and
manage
Page 83
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Thanks for listening, and
congratulations on your desire
to learn!
For any additional questions, please email me at:
[email protected],
or my cell is 330.697.3725
Steve Nickelsen, CEO
www.nickelsenpartners.com
Page 84
Service Advisor
Base: $0
Base pay: 0% of projected income
Commission: 7% of labor only sales
Bonus: From 8% up to 11% paid as bonus or up to 4% over the base 7% paid on hours per RO, effective labor rate held $, maintenance penetration %,
email collection rate %, B-G sales quantity, CSI scores individual
Other Compensation: N/A
____________________________________________________________________________________
General Dealership Information:
Dealer Franchise(s): Ford, Lincoln-Mercury, Volvo, Mazda
Monthly Sales Vol. (new & used): 101-200 - Negotiated Sale
# of Sales People: 12
# of Mechanical Technicians: 32 - Non-Union
Benefits:
_ Health
_ Life
Insurance: Yes - Dealer pays flat amount for all $225.00 Employee picks plan
Insurance: Yes - $10,000
_ Prescription
_ Dental
Plan: Yes
Plan: Yes
_ Profit
Sharing: Yes
_ Stock
Options: No
_ Retirement
Plan: Yes, 401K
_#
Vacation Days: 14 Max
_#
Paid Sick Days: 5 Max
_ Paid
Holidays: 5 Paid
_ Other
Benefits: Shop work at cost plus 10% - vehicle purchase at $500 over cost
____________________________________________________________________________________
Comments: A little complicated but not bad. The dealership could save everyone, including the payroll clerk, some aggravation by adding a base salary
and simplifying the commission/bonus structure.
SERVICE ADVISOR
Base: $2,500/month
Base pay: 50% of projected income
Commission: Semi-monthly gross profit for service and parts sales
•
4.8% 26000 $1,248.00
•
4.9% 27000 $1,323.00
•
5.0% 28000 $1,400.00
•
5.1% 29000 $1,479.00
•
5.2% 30000 $1,560.00
•
5.3% 31000 $1,643.00
•
5.3% 32000 $1,696.00
•
5.4% 33000 $1,782.00
•
5.4% 34000 $1,836.00
•
5.4% 35000 $1,890.00
•
5.4% 36000 $1,944.00
•
5.4% 37000 $1,998.00
•
5.4% 38000 $2,052.00
•
5.4% 39000 $2,106.00
Bonus: $1 dollar spiff for every hour upsold; CSI they receive $5 to $25 for every survey returned,
the higher the Q16 monthly score the more they get per survey
Other Compensation: N/A
____________________________________________________________________________________
General Dealership Information:
Dealer Franchise(s): Buick, Cadillac, Pontiac
Monthly Sales Vol. (new & used): <50 - Negotiated Sale
# of Sales People: 7
# of Mechanical Technicians: 5 - Non-Union
Benefits:
_ Health
_ Life
Insurance: Yes - 75% Paid by Dealership
Insurance: No
_ Prescription
_ Dental
Plan: Yes
Plan: Yes
_ Profit
Sharing: No
_ Stock
Options: No
_ Retirement
Plan: No
_#
Vacation Days: 5 days after first year - 10 days after 2nd year
_#
Paid Sick Days: 0
_ Paid
Holidays: 5
_ Other
Benefits: 125 plan
____________________________________________________________________________________
Comments:
Reduce the number of commission levels and this is a good pay plan. Say 4.8% of the first $30,000 of
monthly gross and 5.4% on anything higher. Same result and less confusion. As an observation, picking
rates like 4.8% and 5.4% makes it clear that the dealer is really trying to manager total pay. As I am fond
of saying, there are easier and more direct ways to do that.
Service Advisor
Base: $750 per week
Base pay: 50% of projected income
Commission: 1.5% of gross sales in service and parts department
Bonus: N/A
Other Compensation: $400 demo allowance
____________________________________________________________________________________
General Dealership Information:
Dealer Franchise(s): GM
Monthly Sales Vol. (new & used): 51-100 - Negotiated Sale
# of Sales People: 34
# of Mechanical Technicians: 11 - Non-Union
Benefits:
_ Health
_ Life
Insurance: Yes - 50% Paid by Dealership
Insurance: Yes - $15,000
_ Prescription
_ Dental
Plan: Yes
Plan: Yes
_ Profit
Sharing: No
_ Stock
Options: No
_ Retirement
Plan: Yes, 401K
_#
Vacation Days: 10
_#
Paid Sick Days: 3
_ Paid
Holidays: 6
_ Other
Benefits: Discounts on vehicles, parts & labor
____________________________________________________________________________________
Comments: Very nice. I like this approach.
DEALERSHIP OPERATIONAL GUIDES
OPERATIONAL GUIDES
The 50 Operational Guides list the critical items under the direct control and influence of the dealership
managers. They can be measured monthly and all will eventually be incorporated into the quarterly budget
review process.
These guides are established both for the dealership and by department, and will be reviewed on a regular
basis to make sure they remain relevant.
Dealerships should measure their progress towards these targets. Once a specific target has been met then
other areas can be addressed.
The controller, comparing actual results to these guides, should investigate and report monthly on significant
variances. Department managers, in conjunction with the management staff, should initiate any changes
necessary.
DEALERSHIP MANAGEMENT GUIDES
Target
1 Cash in bank plus securities
2 Return on Controllable Assets
3 Net Profit as a % of Gross Profit
4 Net Profit as a % of Sales
5 Fixed Coverage - (From GM Statement)
Dealerships w/o Body Shops
Dealerships w/ Body Shops
6 Total Gross per employee – Dealership
60 days of exp.
35%
20%
2%+
70%
85%
$7,500
DEALERSHIP EXPENSES
7 Variable Expense as a % of Variable G/P
8 Personnel Expense as a % of Total G/P
9 Semi Fixed Expense as a % of Total G/P
10 Fixed Expense as a % of Total G/P
26%
33%
20%
16%
NEW & USED VEHICLE
11 Vehicle Sales per salesperson per month
10
12 C.S.I. Scores
Eq. to region
13 New Vehicle Inventory Days Supply
45
14 Used Vehicle Inventory Days Supply
45
15 Manager to sales person ratio
1:6
16 Gross Profit per employee – Showroom
$8,500
17 Used Cars retailed as a % of total retail sales 50%
18 Used Cars wholesaled as a % of total used car sales
(wholesale plus retail)
50%
2010
Actual
2011
Actual YTD
FINANCE & INSURANCE
Target
19 Gross F&I Income per retail unit sold
20 Net F&I Income per retail unit sold
21 Finance Reserve $ to Total F & I Inc. as a %
22 Combined Extended Warranty Penetration
23 Retail units sold per F&I Manager
$600
$400
60%
60%
75
SERVICE DEPARTMENT
24 Gross as a % of Labor (Adj. Cost of Lbr)
25 Retained Income after Controllable Expense
26 Service Writer Comp. as a % of Gross Profit
27 Support Personnel to Technician Ratio
28 Technician productivity Import
Domestic
29 C.P. Hours per R.O.
30 Service Gross per employee
31 C.S.I. Scores
32 Policy Expense as a % of Service Gross
33 Supply Expense as a % of Service Gross
73%
45%
less than 10%
1:3
120%
110%
2
$6,000
Eq. Region
2% or less
3% or less
2010
Actual
2011 YTD
Actual
DEALERSHIP MANAGEMENT GUIDES
Target
Calculation Method
1 Cash In Bank plus Securities
60 days of expenses
1) YTD Expenses.
2) Divide by # of calendar
days YTD to get a daily
expense rate.
3) Divide cash in bank
amount by result of step
#2
2 Return on Controllable Assets
35%
1) Total Assets, less Notes
Payable-Vehicles, less
Other Assets, less Cash
and Securities.
2) Annualize Net Income
YTD
3) Divide result in step #2
by #1
3 Net Profit as a % of Gross Profit
20%
4 Net Profit as a % of Sales
2%
Divide Total Net Profit by
Total Gross Profit.
Divide Total Net Profit by
Total Sales
5 Fixed Coverage - (From GM Statement)
Dealerships w/o Body Shops
Dealerships w/ Body Shops
70%
85%
6 Total Gross per employee - Dealership
$7,500
1) Use YTD Gross Profit.
Divide by number of
months YTD.
2) Divide by the number of
full time (or equivalent)
employees in the
Dealership.
7 Variable Expense as a % of Variable G/P
(w/o F&I).
26%
Divide Variable Expenses
by Variable Gross Profit
8 Personnel Expense as a % of Total G/P
33%
Divide Personnel Expense
by Total Gross Profit.
9 Semi Fixed Expense as a % of Total G/P
20%
Divide Semi Fixed
Expense by Total Gross
Profit.
10 Fixed Expense as a % of Total G/P
16%
Divide Fixed Expense by
Total Gross Profit.
DEALERSHIP EXPENSES
NEW & USED VEHICLE
Target
Calculation Method
11 Vehicle sales per sales rep per month
10
Divide Actual Retail units
by # of Salespeople on
Financial Stmt.
12 CSI scores
Equal to regional scores
3 Months Rolling
13 New Veh. Inv. Days Supply
45
1) Number of New
Vehicles retailed over the
last 3 months
2) Divide by 90, to get an
average sale per day.
3) Divided number of
Vehicles in inventory by
the result of step #2.
14 Used. Veh. Inv Days Supply
45
1) Number of Used
Vehicles retailed over the
last 3 months
2) Divide by 90, to get an
average sale per day.
3) Divided number of
Vehicles in inventory by
the result of step #2.
15 Manager to sales rep ratio
1:6
16 Gross profit per employee -Showroom
$8,500
1) Use YTD Gross Profit.
Divide by number of
months YTD.
2) Divide by the number of
full time (or equivalent)
employees in the Sales
Department.
17 Used cars retail as % of total retail units
50%
1) Number of Used
Vehicles retailed over the
last 3 months
2) Divide by Total number
of Retail Sales (New &
Used)
18 Used cars wholesale % of used car sales
(wholesale plus retails)
50%
1) Number of Used
Vehicles wholesaled over
the last 3 months
2) Divide by Total number
of Used Sales (wholesale
plus retail)
FINANCE & INSURANCE
Target
Calculation method
19 Gross F&I Income/retail unit sold
$600
All retail units plus leases
20 Net F&I Income per retail unit sold
$400
All retail units plus leases
21 Finance Reserve $ as % of F & I Income
60%
22 Combined Extended Warranty Penetration
60%
23 Retail units sold per F&I Manager
75
SERVICE DEPARTMENT
24 Gross profit as a % of Labor
25 Retained Inc. after Controllable Exp.
73%
45%
After adj. cost of labor
1) Service gross (with
parts transfer)
Less: Personnel, Company
vehicle exp., other
supplies, advertising,
policy, data processing,
outside services, training,
bad debts
26 Service Adv. Comp. as a % of Gross
less than 10%
Service gross with parts
transfer
27 Support Personnel to Technician Ratio
1:3
28 Technician productivity Import
120%
Domestic
29 C.P. Hours per R.O.
110%
2
30 Service Gross per employee
$6,000
Use YTD gross pr. (without
parts transfer)
31 C.S.I. Scores
Equal to region
3 month average
32 Policy Exp. as % of Service Gross
2% or less
Without parts transfer
33 Supply Exp. as a % of Service Gross
3% or less
Without parts transfer
Hours flagged divided by
hours available
PARTS DEPARTMENT
34 Parts sales per employee (or equivalent)
w/o wholesale
1) Use monthly YTD sales
2) Divided by # of full time
or equivalent Parts
employees
$37,500
w/ wholesale
$47,500
35 Parts Gross per employee (or equivalent)
$12,500
1) YTD parts gross (no
transfer) divide by #
months YTD
2) Divide by # parts
employees per the
financial statement
36 Retained Income after Controllable Exp.
w/o wholesale
40%
Less: same expenses as
service plus freight
w/ wholesale
30%
37 Inventory Days Supply
less than 45 days
38 Six months no sale inventory
less than 10%
39 True turns (From Parts Management Rept)
6
Use G.L. inventory for
parts compared to 3
months average cost of
sales for parts only
BODY SHOP
Target
Calculation method
40 Gross profit as a % of Labor
65%
After adj. cost of labor
41 Net profit as a % of Gross Profit
30%
With parts transfer inc. in gross
42 Sales per Support Personnel
$25,000
43 Body Shop Gross per employee
$5,500
Monthly based on YTD sales
44 Retained Income after Controllable Exp.
35%
Less same expenses as parts
45 Technician productivity
185%
46 Paint/Material Sales/Customer Labor
17%
47 Paint/Material Cost plus Splies to Customer Lbr Sales
14%
48 Capture Ratio on estimates written
85%
ADMINISTRATIVE
49 Total Gross per employee – Office
$50,000
50 Manager to Office Employee Ratio
1:7
DETERMINE IDEAL STAFFING LEVELS USING GROSS
PER EMPLOYEE TARGET
STAFFING LEVELS BY DEPARTMENT USING MANAGEMENT GUIDES
SHOWROOM
GROSS PROFIT - AVERAGE MONTH - NEW
GROSS PROFIT - AVERAGE MONTH - USED
GUIDE - GROSS PER EMPLOYEE
CALCULATION
$154,000
$99,000
$8,500
30
SERVICE DEPARTMENT
GROSS PROFIT - AVERAGE MONTH
GUIDE - GROSS PER EMPLOYEE
CALCULATION
$184,322
$6,000
31
BODY SHOP DEPARTMENT
GROSS PROFIT - AVERAGE MONTH
GUIDE - GROSS PER EMPLOYEE
CALCULATION
$76,274
$5,500
14
PARTS DEPARTMENT
GROSS PROFIT - AVERAGE MONTH
GUIDE - GROSS PER EMPLOYEE
CALCULATION
$61,542
$12,500
5
TOTAL DEALERSHIP
GROSS PROFIT - AVERAGE MONTH
GUIDE - GROSS PER EMPLOYEE
CALCLULATION
$605,460
$7,500
82