June 4, 2007 – How to make service a profit center

By Matt Bolch
Contributing writer
Even successful dealerships struggle with the service department. For many, the problem isn’t hiring and retaining qualified staff to turn the wrenches, it’s wringing enough money from the department to turn even a small profit.
Comparing data from his dealership to others in his 20 Group, Curtis Sloan from Sloan’s Motorcycle and ATV Supercenter says, “We probably suck less than others in our group, but nobody as of yet is showing a consistent profit.”
The situation has improved since the dealership started focusing on service department efficiency improvements two years ago, but the executive vice president says Sloan’s still isn’t making money on a month-to-month basis.
Action Motor Sports, with locations in Fairview and Gresham, Ore., is turning a profit, but “just barely at this point,” said Darin Simonis, general manager. His mechanics include two with 20-plus years of experience and another with more than 10. The dealership tries to keep everyone working, even during the slow season, “so they have to work extra hard during the busy times,” Simonis said.
Technicians are paid a base salary weighted by experience and a commission for hours billed, Simonis explains. Work is divided equitably among service techs, with the most experienced hands as likely to get an oil change as an overhaul.
Black-hole service departments that are a drain on a dealership’s bottom line are a pervasive problem in the powersports industry, acknowledges Steve Jones, general manager at Gart Sutton and Associates Inc., which serves the powersports industry with training and facilitation. The firm has been working with American Suzuki Motor Corp. on a series of seminars designed to improve service department efficiency and profits. Sutton developed the materials and Suzuki approved them, Jones says.
The first series of seminars offered this spring focused on quick-hit items that dealers could put into practice immediately. Ten classes of 30 participants each filled up in 10 days with a waiting list, which Jones says reflects the importance of this issue. The second series will focus on personnel management as it relates to the service department and will be offered this fall, followed next spring by service department design to increase efficiency.
“Dealer principals and service managers attended together because you can train a service manager, but you can’t make changes without owner approval,” said Jones, who formerly was a technical service adviser for Suzuki. That field position required extensive interaction with powersports dealers while performing warranty analysis, failure analysis, solving problems and dealing with customer issues.
Jones also has worked around motorcycles since he was 12, holding nearly every position in the shop, including technician and service manager. “To me, service is a deep-rooted passion of mine, and, as a company, we fail unless we make our dealers profitable,” he said.
Sutton shared the main points of the first seminar so all dealers can take a fresh look at their service departments to determine how to get better at satisfying customers and turning consistent profits.
The first tip requires an understanding of profitability benchmarks and where your dealership fits into the range. A dealer’s gross profit margin from the service department should be 70 percent or more to maintain profitability. That figure is derived from gross sales, minus technician compensation. Administrative and supervisor compensation is not part of that figure, but should be 30 percent or less of the gross profit margin.
Second is menu pricing, which Jones calls vital to increasing sales and customer satisfaction. “It’s hard to express and sell ‘x’ hours at ‘x’ price,” he said. “Menu pricing is easier for the customer to understand and easier for the service writer to sell.”
Items best-suited to menu pricing include tire changes, tune-ups, seal replacements and any other service a dealership performs on a regular basis.
“We do menu pricing when we can, but we sell many different makes of motorcycles, and the time required to perform a service varies widely,” said George Gatto, president of Gatto Cycle Shop, Tarentum, Pa. The shop employs semi-skilled labor during the summer months to perform routine tasks, such as tire and oil changes, which leaves technicians free for more intricate work, Gatto says.
What the dealership really needs, Gatto says, is a better way to determine flat rates for services and a customized computer system that captures service data more effectively.
The third major key to increasing service department profits is promoting the department and developing uniform procedures regarding how units are checked in and how work is performed. Jones even goes so far as to suggest a marketing position within the service department.
Service writers trained in sales and the use of checklists for write-ups can increase profits through suggestive selling, while a procedure for quick turnaround of internal service requests will go a long way toward satisfying customers, Jones says. Offering same-day service could be a key differentiator between you and competitors.
The final quick hit to improve service department profitability is to maximize the time of each technician to keep him turning wrenches, Jones says.
For example, are your technicians helping to push bikes in and out of the service department on a daily basis? If the labor rate is $70 an hour and four techs are spending 15 minutes each doing this morning and evening, a dealership is spending more than $36,000 on a task that someone making minimum wage could do just as effectively, Jones observes.
“How many of these 15-minute blocks are wasted each day?” Jones asked. Fixes can be as simple as arranging tools and workflow better and hiring a service and parts liaison to pull parts, record them correctly on work orders for billing purposes and deliver them to techs to make sure that each one has two lifts to work from so he can stay busy while parts are being delivered.
Sloan’s Motorcycle, based in the Nashville, Tenn., suburb of Murfreesboro, has been working on the proficiency of its technicians, trying to achieve the benchmark of 85 percent proficiency, which would be 34 billable hours during a 40-hour work week. With double lifts, proficiency can top 100 percent, Jones says.
But the dealership also is positioning its service department as a marketing tool to help wrest business from other dealerships, what Sloan calls conquest marketing. “We feel like we can flip some customers,” Sloan says of the two-year effort. “If customers leave (the service department) with a sense that you care, you may get a shot at that next sale.”
The dealership uses a customer relationship management system from Victory Solutions to compile registration information and other data on those who bought units that Sloan sells from other nearby dealers.
Those prospects are sent direct mail encouraging them to visit Sloan’s for their service and giving them an incentive to do so. Creating a positive customer experience will in turn put the dealership in the running for the next sale, Sloan says.
Sloan believes dual lifts for each technician is “a neat idea” but says the reality in most dealerships is that they’d become high-priced storage racks.
“I’ve yet to see anyone produce proficiency of 116 percent or 130 percent because he had two lifts,” Sloan said.
It’s clear that any powersports dealership can improve its service department by taking a few simple steps designed to give technicians every literal and figurative tool possible to keep them focused on doing their jobs. “As long as (technicians) are turning wrenches,” Simonis from Action Motor Sports said, “they’re making money and so are we.”