Fine-Tuning Service Departments Is Critical to Managing the COVID-19 Crisis
Service departments have become the lifeline for many auto retailers during the COVID-19 crisis. With scaled-back sales departments, fixed operations are now the primary source of profits—putting significant pressure on service departments to keep retailers in business and create opportunities to grow during the pandemic. In our effort to help retailers mitigate the impact and overcome the sudden changes in business, we identified several insights and new strategies for auto retailers to implement today.
The Rapid Shift to Fixed Ops
Many retailers have significantly reduced their investment in variable operations due to mounting financial concerns and pressure from local governments to close non-essential businesses. Based on a recent COVID-19 survey with 75 auto retailers, almost half of retailers have closed their showrooms, while many others have cut back operating hours and overall staff. As vehicle sales rapidly decline during the crisis, auto retailers’ service departments have become their main source of profits, accounting for 71% of gross margin dollars based on Affinitiv’s analysis of financial transactions for a national sample of over 500 luxury and non-luxury retailers.
Rethinking Service Strategy
Due to the elevated importance of service departments, auto retailers need to re-evaluate their service business and reposition their store for success during the COVID-19 crisis. When a revenue boost is needed, the typical reaction by many auto retailers is to focus selling efforts on high-dollar customer pay services. However, consumers have shifted their spending away from high-dollar customer pay services in favor of low-cost services or repairs covered under their manufacturer warranty. We surveyed 300 vehicle owners during the week of April 8 and found the primary services consumers were more likely to get during the COVID-19 crisis were basic maintenance services, including oil changes and tire rotations. Yet consumers were significantly less likely to get more expensive services or repairs, such as brakes, tires, and climate control, during this time.
Properly adjusting service marketing and operational strategies is a critical success factor for auto retailers during the COVID-19 crisis. Retailers need to place emphasis on messages that align with those most-likely services by promoting various oil change options, express service, and the use of manufacturer-certified parts. They also need to consider supporting more express services by expanding their staff and freeing up service bays.
Opportunity in Warranty Service
There is a potential bright side for auto retailers during the COVID-19 crisis: the growth of warranty-related services, such as manufacturer recalls. Since the start, warranty pay revenue per repair order has grown faster than customer pay. For non-luxury retailers selling domestic and import vehicles, warranty pay per repair order grew by 26% compared to only 17% for customer pay. Luxury vehicle retailers experienced a similar trend with their warranty pay per repair order growing by 18% during the start of the crisis compared to 15% for customer pay.
To accommodate for this sudden increase in warranty work, retailers need to adjust their shop’s capacity accordingly. Plus, fostering usage of manufacturer-backed maintenance plans like ToyotaCare will help to drive additional traffic. Both actions will contribute to growing service revenue during this crisis.
Even though COVID-19 has hurt vehicle sales across the industry, auto retailers have the opportunity to overcome some of the loss in profits. Smarter service marketing centered around routine maintenance services, recalls, and maintenance plans will help retailers to drive more traffic and capture a greater share of the service opportunity.