Dealership Growth Hinges on Fixed Ops Performance
By Ted Ings, Executive Director
Service and parts have always been major money makers for dealerships
Most locations count on these “fixed ops” departments to bring in a fixed income great enough to cover operating costs; hence the term fixed operations.
And, in the last decade or so, fixed operations have become increasingly important to dealership growth. The automotive industry has seen some unnerving trends – such as fluctuating new car sales, fewer late-model vehicles, and rising dealership expenses – all of which make training your fixed ops team more important than ever.
Fixed ops training now more critical than ever to dealership success
According to a study by NADA, in 2016, on average, fixed ops revenue counted for 47.3% of dealership total gross profits. Meanwhile, new-vehicle sales were only 27.8%; used-car sales 24.9% [Lareau].
These days, several factors, such as the following, have made service and parts profits a more important part of dealership earnings.
New car sales fluctuate, less late model vehicles on the road
As was mentioned earlier, service and parts income are crucial when new vehicle sales fluctuate. The NADA study found, on average, fixed ops total gross profits increased by around 5% between 2015 and 2016. Gross earnings from new car sales dropped about the same amount.
Overall, people are keeping their vehicles longer, too, leading to fewer late-model cars on the service drive. That means dealers can’t count on warranty work to keep them afloat.
Healthy fixed operations allow a dealership to make a profit even when new car sales, as well as units in service, are on the decline. Even with fewer late-model vehicles, well-trained advisors can raise revenue through customer service and sales tactics. After all, there are hundreds of millions of older cars on the road, all of which need maintenance and repair.
Dealership operating costs on the rise
Store operating costs are also on the rise. The NADA study found, in 2016, average dealership total expenses increased by 6.5%; much of that due to rising employee costs. Technicians, in particular, are commanding higher wages. As everyone in the auto industry knows, there is a nationwide shortage of techs, leading to increased demand.
Successful fixed operations help offset expenses and lead to a greater absorption rate; a figure that shows how well a dealership is recovering its costs. The value, which is expressed as a percentage, is determined by dividing the total parts and service margin by the total dealership expenses.
Naturally, a larger absorption rate indicates fixed ops – and the dealership as a whole – are doing well. For example, if a store’s service and parts departments bring in 300,000 in a month, and the total dealership expenses are 400,000, the rate will be 75%. That is to say: fixed ops covered 75% of the entire store’s costs that month.
Service and parts departments training is an excellent way to bump up your dealership’s absorption rate.
Training improves fixed operations, dealership success
So, if service and parts are where the money is at – doesn’t investing in training for those departments make sense? Fixed ops are integral to a dealerships growth. That's why it’s critical employees in these departments have top-notch education and skills.
There are several ways fixed ops training can improve customer satisfaction, leading to increased profits and a greater absorption rate. Here are a few:
• Reduced come-backs: Obviously, trained technicians do a better job fixing cars right the first time. But advisors play a role in preventing come-backs, too, as they must get correct information from both the tech and customer for a proper repair. And parts people are on the hook for getting the right part promptly. Training these individuals improves fixed ops performance for fewer comebacks and greater customer satisfaction.
• Better sales tactics: Advisor selling skills are more important than ever when units in service and warranty work are on the decline. Proper training provides the sales tactics needed for success.
• Greater employee retention: Hiring and getting a new employee up to speed is expensive. Training gives workers you already have the skills to perform their job with confidence, encouraging them to stay.
• Better management: Well-trained employees don’t require as much supervision. That leaves the service manager free to do their job and focus on pressing matters.
Get started today
The automotive industry is ever-changing. Having a well-trained fixed ops department helps ensure your dealership is ready for whatever the future has in store. Invest in training from Ted Ings and CPI today to prepare for tomorrow.