A profitable service department is a major contributor to your dealership’s overall profitability. How major? The service department and other components of fixed ops typically provide about half of a typical dealership’s total profits. And that’s just the average – new car dealerships in the US had total service sales of nearly $50 billion in 2021!
Increasing your service profits can significantly strengthen your dealership’s financial position and enhance its value, should you decide to sell.
Check in customer’s cars with a brief walk-around: Your primary focus should be on the specific issues that the customer brought the car in for, but there’s one more thing you should always do. Invite the customer to a walk-around of their vehicle to check any outstanding issues with their tires, lights, wiper blades, body, and the fluids under the hood. Doing this can generate additional revenue from tire sales, bulb replacements, new wiper blades, and anything else that the initial under-hood inspection may turn up.
In the service bay, follow up with a thorough inspection of the customer’s car: It is usually worth the time to thoroughly inspect the customer’s car for any additional issues that may not have revealed themselves during the service drive walk-through. The deeper you look, the more you will find – and it all contributes to additional profitability. Even though the customer may not approve having all the work done that day, you can add the remaining repairs and procedures to the customer’s service record as “need to be done next time,” along with reminders sent at regular intervals.
Present the inspection to the customer on video: Sending customers a Digital Video Inspection (DVI) via email or text will clearly show them what the problems are and why they need fixing right away. Your repair approval rate will go way up, as will your average invoice and your CSI scores. The DVI can be produced on a smartphone by the tech working on that vehicle, immediately following the in-bay inspection. It is time well spent, with returns that will satisfy customers and enhance your bottom line.
Assign the right jobs to the right techs with the right skill levels: Having your highest-level (and highest-paid) techs working on your most complex jobs, while assigning less demanding work to your lower-paid, less qualified techs, is a direct route to improved profitability.
Watch your balance of warranty vs. non-warranty work: Too high a proportion of warranty-related work can depress your service profitability, since warranty work pays much less. You can counteract the negative financial effects of warranty work with value-added tactics that will improve your multiple, such as:
- Suggesting that customers who are nearing a maintenance interval have their cars serviced while the warranty work is done
- Doing a walk-around on cars that are in for warranty work to spot items that may need replacement (tires, bulbs, wiper blades, etc.)
- Placing a limit on how much warranty work is scheduled each week, to lessen its effects on the service department’s overall profitability
Turn first-time customers into repeat customers: If a customer had a half-decent sales experience in your showroom, he or she will likely return for the first scheduled service. This is the point at which you need to “wow” these service customers, so that they will come back again and again. It’s how you capture not only their future service business, but also their next purchase of a car, truck, or SUV. Toyota has stated that fully 82% of its dealership customers who stay with that dealer for service will return to purchase another vehicle. That’s the power of a great service relationship, where retention and loyalty can pay off for years to come.
Keep your new car customers coming back after their warranties expire: This is usually the point at which many customers stop returning to the dealership. A combination of great customer service during the warranty period and a campaign of service promotions to overcome the “dealership is too expensive to come back to” perception can retain those customers and their service dollars for many years into the future.
Take back some of the business you are losing to independents: The $50 billion figure we mentioned above for US new car dealership service sales in 2021 sounds impressive – until you realize that the total US service market comes in at around $200 billion! That means that independents can claim $150 billion (75% of the total market), which is three times as much as dealerships. You can pursue some of this lost business by combining what works for independents with the traditional strengths of the dealership:
- Transparent, competitive pricing for common maintenance procedures
- Emphasizing the dealership’s expertise, technology, and brand resources
- Online and direct mail marketing that reaches car owners in a radius around your dealership
- Easy online advance scheduling and payment options
- Touchless drop-off and pickup procedures
- Ride shuttle or ride-share options for customers
Go after your used-car customers, inviting them to come back for service: This works best if initiated within a few weeks of the used-car sale, particularly for those who bought one of your franchised brands. The average car on US roads is more than 12 years old, so these older, higher-mileage vehicles offer a wealth of maintenance and repair opportunities. Get your share by marketing to them regularly with service specials that offer value, while also emphasizing the expertise of your dealership, which can help them to keep their cars on the road longer and with fewer problems.
Give your parts department a more important role in your service profitability: Make parts a serious profit center that contributes mightily to the service department’s bottom line. This can be achieved through a variety of initiatives:
- Increase your retail parts business by selling tune-up parts kits, oil change kits, batteries, and wiper blades at competitive prices, emphasizing the quality of OEM parts
- Sell parts online with quick delivery in a digital e-commerce storefront
- Display aftermarket parts and accessories in the service department and promote them to service customers
- Seek out fleets and become their wholesale parts suppliers
- Improve your parts inventory management to have plenty of frequently-needed parts and fewer obsolete parts
- Unload excess and unneeded parts inventory through Amazon or eBay
Charge for all diagnostic procedures: The diagnostic process takes time, which you must pay your techs for. The larger and more complex the problem, the longer the diagnosis will take and the more it should cost. Let customers know this up front, so that they understand. If the customer chooses not to have their car fixed by you, you have been paid for your services. If the customer does have you do the repairs, you can make a labor adjustment if you so choose. It’s your call.
Increase your parts and service prices: Pricing is a touchy subject, but a price increase, properly applied, can boost your service department profitability immediately. It’s important to be selective with price increases, picking mainly items and procedures that are less price-sensitive. Avoid bumping up prices for services like oil changes, as these prices can be very familiar to customers. Increases will be less noticeable in areas like more complex mechanical procedures, parts that are not used in routine scheduled maintenance, branded parts and accessories, and services such as dent removal and detailing. Reasonable increases over time (especially in an inflationary environment) should not cause any customer issues.
Leverage the service-sales connection for the good of the entire business: Your service department sees a wide variety of customer vehicles each and every day. In this lean inventory environment, each dealership needs to rely more on itself for a steady flow of used vehicles to sustain the profitability of the sales side of the business. The service department can be of great assistance by identifying customers who may be open to trading or selling their vehicles. This can include:
- Cars about to go out of warranty
- Out-of-warranty vehicles facing an expensive repair job
- Extra vehicles that are not needed because owners are working from home
- Owners who need a different vehicle because of a lifestyle change
Once the service department identifies an owner interested in selling or gets a positive response to a question on the topic, a sales consultant can be summoned to have a discussion with and qualify the customer. Any successful sales that result should produce a spiff for the service department’s referral source.