October 31, 2018
After an unprecedented period of sales volume growth, the prediction for a flat Seasonally Adjusted Annual Rate (SAAR) in the coming years has significant implications for dealerships. As competition for new vehicles heats up, front-end margins will continue to decline, forcing more dealers to focus on back end profitability.
One of the biggest obstacles dealers face in boosting service profitability is increased competition from independent repair facilities (IRFs).
Traditionally the 7- to 12-year-old vehicle market has been the bread and butter for IRFs. Due to recent sales trends, the number of units in operation in this vehicle segment has dropped in the last couple years. As a result, IRFs looking for growth have become more aggressive in their search for new customers, primarily in the 4- to 6- year old vehicle market.
Meanwhile the same sales trends indicate that for dealers, service opportunities in the 1- to 3-year-old segment are declining. In order to grow revenue, dealers must also set their sights on servicing the 4- to 6-year-old vehicle market.
In the next few years, the battle for this lucrative vehicle segment promises to be intense. To successfully conquest these 4- to 6-year old vehicles, dealers need to be proactive in the following areas:
Find Active Owners
Most 1- to 3-year-old vehicles are in the hands of the first owner, thus contact information is still in the DMS and easy to find. As vehicles age, more vehicles are in the hands of second owners. Third-party lists vary in quality, and increasing marketing spend to reach all potential customers in your primary market area can prohibitively raise the cost per RO.
Before paying for outside data, mine your lost souls and CRM “no sales” to find new service prospects. These customers considered doing business with you in the past and might be willing to give you another try. Messaging should address why they need to defect from your local competitor; in particular, issues of trust, convenience and service quality are more successful motivators than purely price.
Social media channels, in particular Facebook and Instagram, are also very cost-effective channels to address these consumers.
If your store is part of an auto group, sharing customer data is a critical part of this equation. Most automotive groups fail to effectively cross-sell service. Customers who buy a pre-owned Honda at a Toyota store are unlikely to take that vehicle back for service. However, they might be looking for a Honda dealership. Is there a Honda store in your group? Is the CPO Honda buyer data from other stores shared with that Honda store? Is that Honda store able to target those customers with offers based on individual vehicle service history and current needs?
Another source of customers in the 4- to 6-year-old market is recalls. Recalls offer a tremendous opportunity to create loyal customers. An effective MPI process is integral to this process and must be carefully managed so as not to alienate the customer. Transparency and communication are key to building relationships with recall customers that will translate to future revenue.
Most dealers have room for improvement when it comes to maintaining customer relationships, especially through the transition from warranty to post-warranty. Extended warranty and other attractive loyalty offers can help.
What really needs to change however, is the mindset of most service personnel. Variable pay plans in service reward transactions rather than relationships. Service personnel should be rewarded when customers return for service, rather than on gross sold. The latter incents employees to favor immediate gratification, which risks alienating customers.
The Right Offer
Dealers need to move beyond the “oil change” mentality. From a consumer perspective, there is little value incentive to having oil changed at a dealership versus an independent repair shop. However, when it comes to post-warranty end services and major repair items, the dealerships’ value proposition strengthens. Technician certifications, genuine OEM parts, loaner vehicles and other amenities are all strategies that dealers can use to attract new service customers.
Additionally, pre-paid maintenance programs and extended warranty offers are attractive to a percentage of the 4- to 6-year-old vehicle owners.
Currently dealers face a number of headwinds when it comes to growing service revenue. One of the greatest opportunities for growth lies in servicing the lucrative 4- to 6-year-old vehicle segment. However, to attract and retain these customers will require a new mindset and new best practices until the wind shifts again to our backs.