Most franchised automobile dealerships obtain major portions of their revenue from service and parts. In fact, revenue and profit margins from the three major dealership profit centers - new vehicle sales, used vehicle sales, and service and parts - have changed significantly in the past few decades, increasing the impact of profits from service and parts on dealerships' bottom lines. New dealership programs launched by the automobile manufacturers have been designed to attract customers by implementing more customer-friendly service environments.

The service and parts department in the average franchised car dealership reported a 10 percent increase in dollar sales in 1996 over sales in 1995, and a boost in profit margin to 5.9 percent from 5.3 percent in the previous year, according to the National Automobile Dealers Association (NADA). During the same time period, profits in the new-vehicle departments of dealerships were up only slightly, while used-vehicle profits dropped to 1.6 percent from 2.1 percent in 1995. Overall, the average dealership's net profit before taxes rose from 1.4 percent to 1.5 percent in 1996.

According to NADA, franchised dealerships on average earned $2,676,572 in revenue during 1996 for service and parts sales alone. Although service and parts revenue accounted for only 12.4 percent of the average dealership's total revenue in 1996, profits from service and parts departments represented 53 percent of a dealership's total profit.

While dealerships average over $2.5 million in service and parts revenue per year per dealer, in AutoInc.'s 1997 How's Your Business survey, 37 percent of responding Automotive Service Association (ASA) mechanical repair shops listed total annual revenue in 1996 as between $250,000 and $500,000; 17 percent indicated between $500,000 and $750,000; 15 percent were from $100,000 to $250,000; and 14 percent listed between $750,000 and $1 million. Eleven percent showed revenues greater than $1 million.

The average dealership writes 9,720 repair orders in a year, and has 11 technicians and 16 service bays, according to NADA.

AutoInc.'s survey reported that shops perform 64 jobs per week, or 3,328 per year. Most shops have between three and eight service bays, 12 percent have between nine and 11 service bays, and 15 percent have 12 or more bays. The average independent shop has four technicians.

Independent shops listed $294 as the average ticket price per job in 1997 in AutoInc.'s survey. For dealerships, NADA reports the total service and parts per customer repair order in 1996 was $169. Per warranty repair order, it was $183.

Shifting Margins
The sale of new vehicles is the main source of revenue for dealerships - 58 percent of total sales in 1996. The sale of used vehicles contributed 30 percent of total revenue in the same year. However, the profit margins for new-vehicle sales and used-vehicle sales were 0.3 percent and 1.6 respectively, accounting for average profits of $36,371 and $103,800. The revenue from service and parts sales, at a 5.9 percent profit margin, provided $158,865 in profit per dealership. Hence, service and parts sales accounted for 53 percent of total profits in 1996 for dealerships, while used-vehicle and new-vehicle sales accounted for 35 percent and 12 percent of total profits respectively.

Since 1980, the average profit margin for new-vehicle sales has never been higher than 2.6 percent and has been as low as -0.6 percent.

From 1980 to 1984, the profit margin on new-vehicle sales increased from 0.5 percent to 2.6 percent, but the margin decreased every year since then until 1991, when the average profit margin reached -0.6 percent. Since 1991, the margin has never been higher than 0.6 percent and was negative again in 1995 at -0.1 percent.

The average profit margin on the sale of used vehicles for dealerships has fared slightly better. Since 1980, the margin has never dropped below 0.6 percent, and reached its highest peak in 1994 at 2.2 percent. Used-vehicle departments have been slightly more profitable in the 1990s than the 1980s, although the margins have decreased slightly the past few years.

Profit margins for service and parts sales have clearly increased for dealerships in the past 10 years. From 1980 to 1989, the profit margin was as low as 0.9 percent in 1980 and as high as 4 percent in 1989. The average margin in the 1980s was 2.6 percent. Compare that to the figures for the 1990s:

Since 1990, new-vehicle sales have consistently accounted for about 60 percent of a dealership's total revenue. But as mentioned before, the profit margins on these sales are relatively small.

The revenue from the sale of used cars accounted for between 19 percent and 23 percent of the dealership's total revenue in the 1980s. Since 1990, the impact of used-vehicle sales has increased somewhat, and for both 1995 and 1996, these sales accounted for about 30 percent of a dealership's total revenue.

Service and parts sales have increased almost every year since 1980, but have not increased lately in terms of percentage of a dealership's overall revenue. In fact, the percentage of overall dealership revenue from service and parts sales has decreased in the 1990s from 15.6 percent in 1991 to 12.4 percent in 1996.

But here are possibly the most revealing statistics of the increasing importance of service and parts sales in terms of total revenue for dealerships: In 1980, 26 percent of a dealership's total profit came from service and parts; 22 percent came from used-vehicle sales; and 52 percent came from new-vehicle sales. The average dealership profit from 1980 to 1988 was 24 percent attributable to service and parts; 21 percent used-vehicle sales; and 55 percent new-vehicle sales. From 1989 to 1996, the sources of total profit changed significantly to 65 percent service and parts; 33 percent used-vehicle sales; and 2 percent new-vehicle sales.

For most of the 1980s, 55 percent of an average dealership's total profit came from new-vehicle sales. In the last eight years, new-vehicle sales have accounted for only 2 percent of a dealership's total profit. The numbers are somewhat misleading because profits from new-vehicle sales have been somewhat erratic the past eight years - accounting for as high as 21 percent of total profit in 1994 and as low as -33 percent in 1991. The fact is, however, that the profit centers for dealerships have clearly and significantly changed in the past two decades.

Looking to the future
In his annual forecast for the upcoming year, NADA Chief Economist Tom Webb made some predictions for 1998, including: sales in the service and parts department for dealerships, which he referred to as the "unsung success story" of the past 10 years, will remain flat in 1998 due to better-built vehicles that need fewer repairs and less scheduled maintenance. He added that the fastest-growing segment of the service and parts department sales will continue to be reconditioning.

Eighty-five percent of independent shops in AutoInc.'s 1997 survey predicted sales increases in 1998, while 12 percent expected no change. Slightly more than two-thirds of shops have seen a slight to large increase in the number of customers recently, with the remaining one-third experiencing either no change or a slight decrease.

GM Goodwrench Service Plus
General Motors (GM) first piloted its Goodwrench Service Plus program in 1991 in Columbus, Ohio, with 14 GM dealerships. Judged a success by the dealers and Service Parts Operation (SPO), the program moved to the Chicago area in 1993 for further enhancements as it was piloted with 49 dealerships and retailers.

Building on the success achieved in Columbus and Chicago, GM SPO later expanded GM Goodwrench Service Plus to the Atlanta, Houston, New York and San Diego markets in 1995. The program was offered to dealerships nationally in the fall of 1996. Over 2,100 GM dealerships currently participate in Service Plus, accounting for about half of the total service volume available, according to Joan Muller, SPO's manager of dealer marketing.

The four "cornerstones" of the Goodwrench Service Plus program are competitive, up-front pricing (no hidden costs, no rough estimates); courtesy transportation; convenient service hours; and a limited lifetime service guarantee on select parts, including air conditioning condensers, compressors and accumulators; fuel pumps; ignition coils, wire sets and modules; new and remanufactured starter motors and generators; oxygen sensors; and water pumps.

In 1995, John Putnam, SPO's manager of dealer marketing at the time, said in reference to the Columbus and Chicago pilot programs, "According to nearly 87 percent of the dealers and retailers interviewed in the two pilot areas, GM Goodwrench Service Plus increased sales, and 89 percent reported it had a direct impact on customer satisfaction. Of the customers interviewed, 94 percent cited convenient service hours as a plus, and 92 percent valued the up-front competitive pricing. Almost nine times out of 10, customers indicated that courtesy transportation and the lifetime guarantee were the reasons they would return to the participating dealer or retailer."

GM contends that it takes a lot for a dealer to participate in this program, and it has a "big, thick manual that explains in minute detail what [its] dealers need to accomplish in order to add the 'Plus' to their title." To attain Service Plus status, GM dealerships must complete an evaluation process, and semi-annual re-evaluations are done to ensure compliance with Service Plus commitments. The Goodwrench Service Plus program provides participating dealerships with service merchandising training, which involves analyzing the process customers go through from the beginning to the end of the service experience; market assessment information, which provides competitive information for the local area; customer management system, which includes mileage-driven service reminders and discount coupon promotions; new buyer service orientation clinics, to familiarize new vehicle buyers with the dealership and its service capabilities; and advertising, to promote GM Goodwrench Service Plus at the participating dealers.

"We believe that providing outstanding service at the GM dealership or retailer level is key to total customer enthusiasm," William Lovejoy, GM vice president and SPO general manager, said. "GM Goodwrench Service Plus helps our dealers and retailers exceed their service customers' expectations so they are more likely to return for service and when it's time to purchase a new vehicle." Ford Auto Care

Along the same lines, Ford Motor Company has its Auto Care centers, which are stand-alone service facilities that are owned and operated by local Ford and Lincoln-Mercury dealers. Working with local dealers, Ford first established Ford Auto Care centers in Tucson, Ariz.; Nagatuck, Conn.; and Jacksonville, Fla. The first Auto Care opened in Tucson in 1992.

No vehicles are sold at Ford Auto Care centers even though they are operated by local Ford and/or Lincoln-Mercury dealers. The Auto Care program is currently available to any Ford dealership that meets the criteria and has the financial resources to conduct such an operation.

Owners of Ford, Lincoln and Mercury vehicles can drive into an Auto Care center for a variety of full vehicle maintenance and other light repairs, including warranty work, oil changes, tune-ups and alignments. In addition, the centers claim to offer fast, no-appointment service; convenient hours of operation, including on Saturday; Ford-trained technicians; personal service - customers can walk into the service bay to observe and talk with the technician working on their cars; and convenient waiting areas.

In October 1997, Ford launched the opening of a new Auto Care center in Topeka, Kan., that offers customers six-days-a-week service, a children's play area with a separate TV/VCR, private work stations with computer jacks and phones, and shuttle service to a nearby mall. Free beverages and pastries are also part of the friendly customer service. The center represents an investment of more than $1.3 million by the two participating dealerships. The most recently launched Auto Care center, in Irvine, Calif., had its grand opening celebration in January.

"Our reason for testing the dealer service concept is simple," said Ron Goldsberry, vice president and general manager of Ford Customer Service Division. "We estimate that 70 percent of our customers have non-warranty maintenance and repairs done outside of their dealership. Ford wants to help dealers capture this business. We also believe that owners of Ford and Lincoln-Mercury vehicles will be more likely to purchase another car or light truck when they become aware of our excellent new service capabilities."

The results in the past few years have pleased Ford. "Auto Care has generated high levels of customer satisfaction and has been successful in winning back Ford and Lincoln-Mercury owners from the independent aftermarket," said Mike Jordan, executive director of Ford Customer Service Division's North American operations.

As of October 1997, Ford's three existing Auto Care facilities had achieved an overall customer satisfaction rating of 9.6 based on a scale of 1-10. "Initial Auto Care results indicate that about 65 percent of the business has been recaptured from independent service facilities," said Jordan.

The main factor affecting a consumer's choice of where to have their vehicle serviced is proximity of the service shop, according to a 1995 survey, the Automotive Service Advertising & Perceptions Study, commissioned by ASA and conducted by the Yellow Pages Publishers Association.

Part of the reason that Ford is opening stand-alone service centers is to make the locations better for certain customers - Auto Care centers are located in high-traffic areas near shopping districts and office areas. "In Topeka, we're bringing the service function of the dealership to our customer's neighborhood," said Steve Noller, chief executive officer of Noller Automotive Group, who owns the Topeka Auto Care center.

Chrysler recently opened a stand-alone service center similar to Ford's Auto Care centers. The new Chrysler Neighborhood Service Center opened in February in Irvine, Calif.

OEM Quick Service
In addition to its Auto Care centers competing with full-service, independent shops, Ford is also competing with independents and "quick service" outlets through its new Quick Lane service centers, which are designed to take care of vehicle maintenance and light repair work, including oil and filter changes, brake systems, tires, exhaust systems, tune-ups and alignments. Much like the Auto Care centers, the Quick Lane centers have extended operating hours, including Saturday service, competitive prices and factory-trained technicians.

"Our customers have indicated that they want the option of speedy, no-appointment service during hours that fit their busy schedules," said Jordan.

Quick Lane service centers are part of, or adjacent to, an existing Ford, Mercury or Lincoln dealership, unlike the stand-alone Auto Care centers. The Quick Lane centers are independent of the dealer's primary service department and are equipped to service cars and light trucks, including competitive makes.

Similar to the Ford Auto Care centers, customers at Quick Lane service centers are encouraged to interact directly with the technicians who service and repair the vehicles. "The Quick Lane concept offers customers convenient, high-quality service for maintenance and light repair needs at the dealership," said Jordan. "We also believe that positive experiences at our Quick Lane service centers can enhance customer loyalty rates and keep satisfied customers in the Ford fold."

Ford currently has three Quick Lane service centers operating in Bridgeton, N.J.; Independence, Mo.; and Port Charlotte, Fla.

The Independents' Market Niche
In the 1995 ASA survey, of those consumers who had sought automotive service from a service shop within the past two years, 40 percent had last done so at an independent repair shop, while 32 percent cited a new car dealership as the last facility to perform service on their vehicle. The other responses were: service franchise (12 percent), service station (7 percent); service center - national retailer (5 percent); and other (4 percent).

Of those consumers whose last service experience was at an independent shop, 24 percent went there because they had been there before, 21 percent said they "know them," 20 percent cited proximity and 19 percent cited cost as the main factor. Of those whose last experience was at a dealership, 11 percent went there because they had been there before, 1 percent said they "know them," 10 percent cited proximity, and 3 percent said cost was the main factor. Sixty-seven percent of those who last went to the dealership for service did so either because their vehicle was still under warranty or because that was where they bought the car.

The automobile manufacturers are focusing more on the service aspect of the industry through various, new programs. Service has long been important to dealerships in terms of profit potential and overall customer satisfaction, but the original equipment manufacturers' new programs appear to be attempting to cater to the desires and expectations of customers that have persuaded many of them in the past to use independent shops. By making their technicians more personally accessible, having more flexible hours, and in some cases building service-only centers and building them in more customer-friendly locations, dealerships are partially attempting to satisfy the post-warranty wants and needs of customers - the wants and needs that in the past have caused many of the dealerships' service customers to seek service somewhere other than at the dealership once the warranties have expired.

PROFITABLE CHANGE
Extending Service Hours

Dealership service departments were open an average 50 hours per week last year, and more than half offered some weekend hours, according to NADA in a June 1997 survey of franchised new-vehicle dealers. This number increased from the previous year.

The "off-hours" trend seems to be swinging toward evening hours, offered at 11 percent of dealerships, compared to 9 percent in 1995. The number of dealerships offering both evening and weekend hours also increased by 2 percent over the previous year.

Both evening and weekend hours are offered at 20 percent of all large dealerships (750 units or more sold per year). The number of mid-sized dealerships (400-749 new units sold) offering evening hours increased from 10 percent in 1995 to 18 percent in 1996. Thirty-two percent of small dealerships offer weekend hours.

The service departments of large dealerships are open an average 57 hours each week; mid-sized dealerships' service departments average 52 hours; and small dealerships average 46 hours.

RATE THIS ARTICLE What do you think of this article? Your input will help AutoInc. develop additional articles on this subject. Share your thoughts! Your name Your e-mail address

MOST ACCESSED ARTICLES Fuel Injection Service, Not Just Cleaning The Art of Extraction EGR Systems: Operation and Diagnosis Proactive Target Marketing:_Rethinking Your Business Strategy Engine Performance: HO2S Diagnostics MOST E-MAILED ARTICLES Developing Employee Potential How Critical Thinking Can Help Your Business How to Diagnose the Ford Glow Plug What to Look for When Shopping for the Right Shop Management Software Putting a Price Tag on Complaints

AutoInc. Web Site | ASA Web Site | ASA Completes Safety I/M Analysis | Dealerships Compete for Independents' Customers | Timely Tips for Time Saving in the Paint Shop | Everything You Didn't Want to Know About Running a Profitable Body Shop | Guest Editorial | Tech to Tech | Tech Tips | Shop Profile | Net Worth | Stat Corner | Chairman's Message