An automobile dealership is an extremely complex organization, effectively housing several different businesses under its roof. It may sell new and used vehicles, provide service for vehicles (whether they were purchased at this dealership or not), and offer parts, not only as part of the service process but also as free-standing items (such as tires and batteries).
The current trends in automotive M&A are pointing towards an exceptional market in dealership sales. As a dealership owner with the ultimate goal of selling locations, there are many methods to achieve a higher valuation and much greater buyer interest. Most of them are small, relatively easy things that, when done together, can make a huge difference in your dealership’s multiple.
At DCG Acquisitions, valuations are on our mind all the time. When you partner with us to sell an automotive business – from a single dealership location to an entire group – we’ll advise you on the strategies you need to consider in order to get the most from your sale and secure your legacy.
You can think of your dealership in the same way that you would a pre-owned car you’re selling. It looks fine and it runs adequately as well, but with a thorough detailing, a nice new set of tires, and a good tune-up, it will attract more attention and outperform its peers. Here are some ways that you can upgrade your dealership’s performance and catch the eye of a buyer with deep pockets:
Boost your CSI scores
Your store’s Customer Satisfaction Index, or CSI score, is a barometer of how well your business is serving the needs of its customers. A high CSI score, in the areas of both sales and service, is worth its weight in gold when buyers assign a value to your dealership. It reflects the high quality of the customer experience you provide, on the showroom floor and in the service drive. It tells a buyer that you care about your customers.
High CSI scores also build customer loyalty. This results in customers returning to buy more vehicles, as well as becoming service customers who return for all their maintenance and repair needs. This level of customer loyalty translates directly into profitability. The lifetime value of these loyal customers is considerable and will definitely weigh in your favor when it’s time to negotiate a selling price.
Customers see your dealership as the vehicle brand’s representative in their community, which manufacturers are acutely aware of. This is why achieving and maintaining high CSI scores are also tied to many manufacturer-provided benefits, such as vehicle pricing, sales bonuses, and best-selling vehicle allocations. These benefits alone can help dealers to continually outperform their competitors who are unable to achieve comparable CSI scores.
How to improve your CSI
As with many consumer-facing business processes, improving your CSI is a multi-step process, always focused on making the customer feel like a highly-valued part of your operations. There are a lot of ways to interact positively with your customers, leaving them with a good feeling that makes them want to return to you, and this positivity ultimately costs you nothing. For the best results, these should all be integrated into the process that all of your employees should be trained to follow.
Sales-related CSI tips
Understand the customer so you can address their needs: Ask each customer about their own unique lifestyle and help them select a vehicle that best meets their needs. Do they have a family? Are there any children and what are their ages? What are their hobbies and preferred activities? Do they own any other vehicles? Their answers to these questions will help you to satisfy them better – and that leads to higher CSI scores.
Move as much of your sales process online as you can: Thanks to the pandemic, more and more car buyers are comfortable initiating the buying process online. Some even prefer to complete it that way. Accommodate these potential buyers by letting them shop, price, finance, and take delivery from the convenience of their workplaces or living rooms (within the limitations of your state regulations, of course). Keep in mind that many online-only used car dealers – and others – are already doing it successfully!
Respect the customer’s time: Everyone’s time is at a premium these days. Be aware that your prospective customer has likely spent a great deal of time researching vehicles on the internet and is well-armed with information. Don’t make them sit around and wait for answers to their questions or for a test drive. Do not subject them to the interminable and universally-disliked “F&I purgatory.” If they feel that you are wasting their time, they will be out the door and on their way to a dealership that will meet their needs more time-efficiently. That customer will likely never be available to complete a CSI survey for you.
Make your F&I department a serious contributor to your CSI: It’s time to make sure that your F&I department works to improve your CSI scores, not detract from them. Understanding each customer’s unique needs will help your F&I staff to come up with the specific products and services that will meet their needs. Solving the customer’s individual financing issues should be a positive experience, without any pressure or bad feelings. Keep the process as short as possible, make the paperwork part easy, and be totally transparent.
Show the customer how to use any new technology on their car during delivery: Customer frustration with the proper operation of the new tech features on their new vehicles has tanked many CSI scores. This applies to the infotainment system, driver assistance features, and anything else that they have not experienced in their previous vehicles. Prevent this frustration by demonstrating the proper use of these features to them, letting them try to do it themselves, and then correcting any errors they make. This will ensure that they can operate these features with confidence once they drive off, which will be reflected in higher CSI scores.
Follow up with customers who did not return to buy: There can be many reasons why a customer did not return after their initial visit. Yes, they could have bought a car elsewhere, but they may also have had a personal issue that intervened and prevented them from coming back. Your follow up call or text shows that you are still thinking of them and could result in a sale. And that could be very good for your CSI!
Service-related CSI tips
Set up online scheduling No one likes being put on hold while trying to set up a service appointment. Make the experience easy and hassle-free by letting your customers schedule their service online. This will also free up your staff to do other more important tasks.
Don’t ignore customers: Be sure to greet and acknowledge every service customer who pulls into the service drive, no matter how busy you are. It’s a little thing, but it can make a big difference to a customer waiting to check a car in.
Do a walk-around with the customer on each vehicle being serviced: Taking care of all of the customer’s vehicle problems is a sure route to good CSI scores. A walk-around can turn up problems that the customer was unaware of, such as fluid leaks or worn-out tires. Your customers will be pleased that you noticed these issues and dealt with them before they turned into breakdowns or blowouts!
Educate customers about servicing their vehicles: Most consumers know very little about how their cars work and the various types of maintenance they need. Service advisors should provide customers with enough relevant information with which to understand their vehicles’ current and future needs and the benefits of having these procedures done. Customers will appreciate having this knowledge, which can lead to a greatly improved relationship between customers and their service advisors, along with increased service revenue.
Fix it right the first time: There’s no worse effect on your CSI scores than a customer whose vehicle was not repaired properly. This will not only ruin your scores, but it will most likely result in you losing that customer, who will then badmouth you (deservedly) to everyone who will listen. Don’t let this happen to you!
Review the work that was done when returning the vehicle: Take a moment to go over every maintenance and repair item that was performed when the customer picks up their car. Emphasize the long-term benefit of having each item completed. This will drive home the thoroughness of your service department and can make the customer feel confident about its professionalism, so that they can drive away with confidence in your abilities. And don’t forget to smile and say, “Thank you.”
CSI tips for both Sales and Service
Deal with complaints on the spot: Don’t wait, fix it right now. Customers who are unhappy will tell everyone they know about their problem and are highly unlikely to provide you with a great CSI score. Empower your employees to resolve these complaints promptly and to do what’s necessary to turn them into positive experiences.
Communicate with your customers appropriately and keep them updated: Weather it’s a sales or service customer, keep them apprised of where they stand through every step of their specific process. Begin by asking each customer what their preferred method of communication is – some prefer phone calls, some would rather receive texts, some may want emails. Then stay in touch, notifying them of any changes or issues that arise.
Explain the CSI survey and its importance to your customers: Most customers only hear about CSI when they purchase a new car. They may or may not complete and return their surveys. Improve your chances of a positive CSI survey by telling customers about the importance of the survey to the dealership and how it acts as a reflection of the top-notch customer service provided to them by your dealership. Follow up with a mailed reminder postcard a week or so later. This should improve both your CSI completion percentage and your scores, for both sales and service.
Walk the Talk: There is a well-known saying about customer service that can also apply to CSI: “It’s not a department, it’s a way of life.” The processes and procedures that produce high CSI scores are not an act – they are behaviors that must be put into practice from the top to the bottom of your organization. Everyone from the CEO/owner down to the shuttle driver needs to believe in them and use them in every personal interaction. Train your staff thoroughly to do their very best and set up an incentive program tied to increases in your CSI scores.
Achieve a more predictable lead flow
Leads are the lifeblood of any sales-based business, and automotive retailing is no different. Waiting around for customers to walk into your showroom is not an option, especially in the current production-limited environment. Qualified leads who are ready to buy will directly benefit your bottom line – and your dealership’s multiple.
The flow of solid leads can be wildly inconsistent, from day to day and week to week. What does it take to provide your store and your salespeople with a steady supply of good-quality leads?
Separate prospecting from sales: Prospecting and selling are two completely different types of skills. Prospecting is analytical and methodical, while selling is emotional and relational. Just as with a sports team, you can have a better outcome with different “players” performing a variety of specialized roles, such as:
- Outbound lead generation (contacting existing customers)
- Inbound lead response (vetting inquiries from website and other marketing channels)
- Sales staff (supplied with plenty of qualified leads by the first two)
This process keeps the leads flowing and the sales staff supplied with plenty of good sales opportunities. Be sure to first establish the standards you require for good quality leads, so that your sales staff will be happy with the prospecting process. Get your BDC involved and monitor the results.
Set up your website to produce incoming leads:
Place your contact information (your name/phone/physical address/email address) at the top and/or bottom of each website page.
Use an automated chat bot to produce incoming communications/leads from online visitors at any time. Enable live chat with a salesperson for qualified leads during business hours.
Place a contact form on every single vehicle listing, which can include a request for more information, a test drive, or any specific questions from the prospective customer.
Show your good reviews from Google and social channels by sprinkling them plentifully around the pages of your website to build trust with visitors and generate leads.
Provide fresh, high-quality, authoritative blog content that positions you as an expert in the automotive field.
Offer your website visitors useful content in the form of free “How-To” ebooks you have created in exchange for their contact information and watch your lead volume grow. Your agency can coordinate the production of the ebooks or you can hire a professional freelance writer and designer to produce each one. By creating a series of these ebooks, you can offer a variety of titles at regular intervals, and they can be timely and seasonally relevant to coordinate with the terms people search for in different times of the year. Possible topics might include:
- Winterizing your vehicle
- What to pack for a summer vacation road trip
- Guide to off-roading in (your state or region)
- Preparing your vehicle for summer driving
- Popular accessories to add to your pickup truck or SUV
Optimize your website for mobile: More people than ever are viewing your website on a smartphone screen. Make it easy for them to respond by not cramming too much type on each page and keeping paragraphs short. Contact forms for inquiries should be located on each page and be large and easy to find.
Follow up leads quickly: Internet leads go cold very quickly. Buyers could be onto someone else’s website and inventory before you respond to their inquiry. The faster you can respond, the better. Some dealers have connected their automated chatbots to real-time chat and video with impressive results. Others have integrated messaging with their social media for more responsive communication.
Use “walk-through” videos to generate leads: Creating a series of videos for your website, YouTube channel, and social media that showcase your vehicles can generate high levels of consumer interest that turn into hot leads. Highlight the vehicle’s exterior design, interior technology and comfort, safety systems, and performance. Reinforce your dealership’s emphasis on customer service while inviting them to take a test drive and making them a purchase and lease offer to solidify their interest.
Generate leads through social media: The average car buyer spends much more time scrolling through social media than on auto-related sites, so use this to your advantage. Post regularly (at no cost) to your social media channels, including arrivals of new vehicles. Add share buttons for other social media platforms to broaden your reach. Use video for higher levels of interest. Post often and engage your followers by asking relevant questions about their buying preferences and analyzing the feedback you get. Consider adding chatbots to your Facebook page so you can respond to inquiries 24/7. For a little extra spend, use paid advertising options like Facebook Marketplace and sponsored listings to target even more potential customers in your market area.
Use customer referral offers: Your satisfied customers are likely to know friends, relatives, and neighbors who have heard about their positive experience with you and may be in the market for a vehicle. Encourage them to provide you with referrals in exchange for a gift card or dinner at a nice restaurant. You can connect with them via either email or direct mail. This is a low-hanging fruit-type of lead generation program with a high potential rate of return.
Cut back on your usage of third-party sites: The cost of being on every third-party site can really add up and dilute your lead generation results. Analyze those results and reduce your usage to only the site that performs best for your dealership. To make the most of your new focus, upgrade your vehicle photography and video production quality to impress shoppers and make a great impression.
Adapt to the new lean inventory environment: The days of excess vehicle inventory and overflowing lots are gone, at least for now. While per-vehicle profits may be at all-time highs, there are other issues your dealership must now deal with:
- Sky-high new and used car prices
- Tight new and used car supplies
- Frustrated car shoppers
- No solution in sight
The rules of the game have changed. The mass market is no longer working as a source of used vehicles. This makes it essential to target those who are most likely to sell you their vehicles. For the best results, reach out to your customers who have a lease that will end in several months and try to purchase their vehicles before lease-end. This will work better if you have an existing or soon-to-be-delivered new lease vehicle to put them into at the same time. Outside data vendors can. help you to reach beyond your customers to other local residents in the same boat. This process actually lets you generate your own pre-sold leads and build up your used car inventory at the same time!
Analyze and adjust your lead generation results regularly: Stay on top of the data that shows you what is actually happening with your lead generation efforts, then tweak them for the best ongoing results. Look at the numbers of online visits, chatbot conversations, and live chats. See where your online traffic is originating, what the response times to customer inquiries are on your end, and how many sales have resulted when all is said and done. Compare this to any offline lead generation you are using, such as direct mail. Adjust and fine-tune as necessary to improve your overall results.
Upgrade your service efficiency
When operating smoothly, your dealership’s service department can be a major generator of profits for your entire business. From the outside it looks so simple: vehicles drive in and money comes out. Rinse and repeat daily.
If only it were that easy. The service department has a lot of moving parts that must interact flawlessly and efficiently, time after time, in order to produce those profits. And as you strive for an ever more frictionless service experience, you must also delight your customers.
It all starts with your processes: Your service department should have an established set of standardized processes that are performed consistently, time after time. Training your entire staff and holding them to the specifics of these processes will make your service process run faster, smoother, and easier for everyone.
Adopt easy-to-use online service appointment scheduling: Your customers are used to scheduling their medical appointments, so why not let them make their service appointments in advance? This lets you plan ahead for your precise staffing needs and maintain a smooth workflow through each day.
Use text messaging to stay in touch with customers: Just about everyone, except for the most senior of senior citizens, uses and appreciates the convenience of texting. Your service advisors can send text messages to update customers – whether the work is completed, it has been delayed, or more needs to be done and you need approval. Customers can easily ask questions and have them answered promptly, speeding your workflow along.
Add pick-up and drop-off services: This tactic has been used by luxury brands for years to build customer loyalty. It is also a great way to more efficiently schedule your service department. Relieving your customers of figuring out how to get their car to you (and taking the time to do it) means one less thing for them to worry about. It also lets you schedule their vehicles at your convenience.
Follow up with no-shows: Some customers simply forget their scheduled service appointments and don’t show up. Contact them as soon as you are aware of their absence and reschedule them as soon as possible. Their value to your business is worth it!
Speed up the service process wherever possible: Improved service efficiency comes down to getting more done in less time. Add to that the fact that customers hate to wait for service. Once that you have instituted online scheduling and prompt check-in procedures, take a page from the quick-service auto repair business handbook when it comes to routine items such as oil changes, tire and battery replacements, exhaust repairs, and the like:
- Offer same-day or next-day appointments for these service items
- Dedicate specific advisors, bays, and techs to handle these jobs
- Market these services against non-OEM competitors at competitive prices with speedy turnaround
- Get customers in and out fast to keep them happy!
Hire more techs when you approach 100 percent productivity: It may feel great to reach 100% labor utilization in your service department, but that can translate to making customers wait too long. In many cases, hiring a tech, even someone who only has mid-level skills at the moment, will speed up your overall work output and increase customer satisfaction, without breaking the bank. Not only that, given the amount of experience they will gain in a period of higher service appointments, you will be able to develop this new technician into a highly skilled and loyal employee who can strengthen the whole department.
Stop giving service techs non-billable work to do: Your profitability goes straight downhill when your techs do work that produces no revenue. Keep them on task, in their bays, generating revenue. Many dealerships do not permit techs to look up or pull their parts – a service manager or other personnel should be assigned to handle this task. Don’t make them answer phones or do anything else that doesn’t contribute to the bottom line.
Use a BDC to support your service department: Let your expert service staff concentrate on diagnosing and fixing your customers’ vehicles by creating a BDC (Business Development Center) to handle tasks like appointment scheduling, communicating with customers, generating additional service revenue, business development, marketing promotions, email and social media campaigns, and overall customer service efforts for the department. If you already have a sales-oriented BDC, this can be an offshoot of it.
Streamline your vehicle pickup and payment processes: Eliminate your service department’s “checkout line” by providing customers with online payment options via their smartphones. Let them see their invoices online and pay them before they arrive and pick up their vehicles. This can save everyone a lot of time and customer aggravation, which also translates into cashier hours saved!
Review your performance stats regularly: Take an overall look at the performance of your service department at regular intervals. Use a set of appropriate KPIs (Key Performance Indicators) for evaluation purposes, based on the metrics that are of greatest importance. How efficient is your scheduling? How long does it take a car to go from check-in to the service bay? How productive and efficient are your techs throughout the work day? And so on. Look for ways to continually measure and improve the efficiency of your service operation. Remember to reward the high performers and coach those who need some help to get there.
Reduce the number of vendors and suppliers: Doing more business with fewer suppliers usually leads to lower prices and better service. It can also result in improved inventory management, letting you receive smaller shipments on a just-in-time basis. This can have an extremely beneficial result on the department’s bottom line.
Build up your service profitability
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.
How these elements together are greater than the sum of their parts
Automobile sales and service retailing is a complex business, but by approaching it piece by piece, you can improve your store’s efficiency and profitability. This will inevitably result in a higher multiple for you, one which can be entirely justified by the comprehensive efforts you have taken to achieve it. And when the time comes to sell your dealership, DCG will help you to successfully navigate the sale of your dealership to the best available buyer.
DCG Acquisitions is committed to maximizing your dealership’s value
DCG is here to help you get the most value out of your dealership when you decide to sell it. DCG is one of the country’s leading, and fastest-growing, automotive M&A firms. We pride ourselves on our network of connections — with automotive manufacturers, financial lenders, dealership buyers and sellers, and more — that help us create a qualified, competitive environment on both sides of the sale.
Contact DCG Acquisitions to speak directly with an automotive M&A specialist and learn how our expertise can help you get the most out of your next dealership purchase or sale.