Dealerships face continued drop in warranty, repair work
Service and parts departments have provided much-needed revenue for dealerships as they've clawed their way out of the tumultuous recent recession. But dealerships face a declining demand for both warranty and customer-pay repair work, and will likely need to make serious adjustments in order to stay competitive.
Late last year, when J.D. Power and Associates released its 2012 U.S. Vehicle Dependability Study, the company revealed that there had been a 22 percent reduction in problems per 100 vehicles between 2009 and 2012. The numbers dropped from 171 issues in 2009 to 132 last year. The company surveys customers after three years of vehicle ownership, so the most recent cars in the study were purchased in 2009 and would be well out of warranty (in most cases) by this point.
Those statistics have been trending downward for years, which is one reason why consumers are keeping their vehicles longer. Because cars are more reliable, dealers are seeing less warranty work and less repair work in general than they had in the past. And most of the post-warranty work that is out there is going to aftermarket repairers.
The latest data from the National Automobile Dealers Association (NADA) indicates that warranty sales fell 1.9 percent between 2010 and 2011, while overall customer mechanical sales increased by just 3.6 percent.
That means dealers have to shift to bringing in more maintenance work. "There's a perfect storm brewing right now," says Charlie Polston, a fixed operations profitability and customer retention consultant with BG Products. "First, cars are more reliable. But the other thing that's happening is that, because of the economy, many people are deferring needed repairs. Cars are built better, and sometimes those repairs get pushed aside for more pressing needs."
For many dealers, that shift will require retraining on the service drive. "In many dealerships, the service advisors are just order takers. They write up what needs done, and that's it," Polston says. "Most consumers don't know anything is wrong with their vehicle until there is a catastrophic failure. The same thing happens at independent service centers, too. But if your livelihood is dependent on waiting for stuff to break, you are likely to go out of business."
Multi-point inspections uncover new business
One key element of this new strategy is a focus on thorough multi-point inspections. "This idea has been around forever, but in most dealerships people drift away from the process or they don't do it quite right," Polston says. "In a perfect world, the technician does a good inspection, the advisor communicates 100 percent of those recommendations to the customer and suggests they have that service done that day. It's remarkable how many dealerships don't do that simple thing."
The multi-point inspections should be simple. "If they have too many moving parts it takes the technician too long to fill it out, so what they do is they don't really do the inspection; they just mark up the form," Polston says. "Make it one page, and make it easy to see which items need completed that day."
A better inspection process only works if the customers come back to the dealer for service in the first place, Polston says. While he's not a fan of free oil changes, he does think they can work as a valuable incentive to bring customers in as long as the service advisor knows why the oil change is being offered.
"The oil change isn't the end; it's a means to an end," Polston says. "You have to look at that car for additional maintenance opportunities. We're seeing some dealers using lifetime roadside assistance and lifetime engine warranties to keep customers coming back, too. Those are other ways to provide more maintenance opportunities over time."
Polston also has encouraged dealers to take another look at tires. "The number one defection point for customers is tires," he says. "Dealerships need to offer tires, but they also need to check tread depths every time the customer is in for service. If you want to slow down defection, you have to find ways to keep them from defecting in the first place."
He adds that dealers should hand out physical service menus to all of their customers as well, because many vehicle owners simply don't think of dealerships when it comes to things like oil changes and tire rotations.
"Nobody is stealing the service business from dealerships," Polston says. "The dealers are chasing the business into the waiting arms of the competition for one reason: they aren't asking for the business. Most car owners don't really understand how to maintain their cars so they don't break. That is the biggest growth opportunity and customer satisfaction area that dealers have right now."
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