5 Challenges Dealers Face in Growing Service Profits

To grow profits in today’s automotive environment, many auto dealers are focusing on growing service department revenue. Achieving this goal presents a number of challenges, including:


1) Declining new vehicle sales volumes

NADA predicts 2018 new-vehicle sales of 16.7 million units, down 2.3% from 2017. That’s not a huge decline, but new vehicle sales also face stiff competition from a glut of off-lease and used vehicles. Fewer new car sales means less future warranty work. 


2) Higher quality vehicles

Available work per unit is declining as quality improves, service intervals lengthen and work shifts from repair to replace. Dealers can no longer count on substantial warranty work and in-warranty customer pay business from new vehicle sales as a way to feed steady business to their service departments.


3) Increased Competition

Independent aftermarket chains are entering a recession. Due to the recent spike in new vehicle sales, the volume of vehicles older than seven years and still in operation is declining.


This decline will continue until 2022, prompting chains to expand service offerings and launch aggressive marketing campaigns. Their prime target is customers with vehicles from four to six years old; the same customers that dealers like to target.


Dealers cannot afford to lose market share to independent chains. To maintain yield in this environment, dealers need to capture a greater percentage of their market service potential.


4) Shifting Customer Expectations

Today’s consumers expect a transparent and convenience-driven experience, which traditional dealer processes and systems are ill-equipped to deliver.


Your customers are baffled that they can track a pizza being made and delivered to

them, but must call your dealership several times to check on the status of their car, then wait to pay at a cashier.


5) Lack of Service Growth Strategy

Growing service revenue doesn’t just happen. Growth requires the creation, execution and management of a strategic plan. Many dealers don’t have a strategic plan, unless you believe that doing more of the same counts as a plan.


What was it someone once said about doing the same thing over and over again, but expecting different results?


The good news is, it’s not all bad news. Our industry is exiting a period of unprecedented tailwinds that have created exciting opportunities for growth.


Since 2012, the combination of increased new vehicle sales and a 13 percent reduction in the number of auto dealerships has created the highest units-in-operation (UIO) to dealer ratio in history.


To take advantage of this opportunity, you need to accomplish two things:

  1. Increase service yield from current customers/UIO
  2. Increase market share


Do you know what your dealership’s current revenue-per-UIO is? Do you know what you have to do to increase market share?


If you’re not sure, the first thing you should do is ditch the service absorption metric. I’ve written before how I believe that service absorption is a dangerous number and is an outdated metric for modern times.

One major problem with this metric is that you can have 100 percent service absorption, yet still be losing market share. You can’t manage what you can’t measure.


Revenue per UIO allows you to measure both service yield and market share, so you can establish a baseline from which to grow.


How to Increase Service Yield

Most auto dealerships capture less than half the work needed on vehicles that enter their service lanes. To increase service yield, focus on providing complete vehicle care to your current customers.


To do this you must identify, communicate and capture all service needs. This may require changes to your write-up, multi-point inspection (MPI) and service recommendation processes.


Technologies such as mobile tablets can help, but incentives may need to be put in place so advisors and techs are encouraged to spend the appropriate amount of time with every customer. Additionally, data must be leveraged so your staff can easily identify recommended repairs.


When customers arrive in the service lane, an advisor needs to check the following, every time:

  • Is there an open recall?
  • Are there declined services from last time?
  • What are recommended services/repairs on a vehicle like yours?

The last question is key to making upsells and capturing more service business. Also, prepare your customers for the next visit with a list of service recommendations for the next 10,000 miles.


How to Increase Market Share

Most dealers’ service marketing efforts utilize mail and email channels to remind customers about factory scheduled maintenance and select seasonal campaigns. Many conquest campaigns rely on “oil change” offers to bring new customers in.


This marketing strategy performs significantly below potential impact. To drive more responses, an integrated marketing campaign must replace the “fire and forget” mentality.


Omni-channel marketing leverages the following channels and delivers highly relevant offers to each customer:

  • Direct Mail
  • Email
  • Facebook/ Instagram
  • Google/SEO
  • Service PPC
  • Display ads
  • IP-based retargeting 

With every customer interaction, data is collected and used to create a message or offer that drives the customer to the next stage. The customer is guided through needs notification to scheduling, to the appointment, to in-service notifications and post-service follow up.


This marketing strategy is designed to build relationships, instead of a one-and-done service experience. Creating processes and marketing programs that focus on the relationship, rather than the here and now, is a critical part of any service growth plan.

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