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Steve Hall

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Customer Retention in the Service Department (Part One)

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Is YOUR service department’s overall gross profit growing year-over-year? The automotive industry as a whole has been in a growth mode for the last five years.  Unfortunately, too often we want to continue to look back and blame the financial meltdown of 2008-2009 for what we are doing today. Although that did take a hard toll on us, currently we are actually in a good place going forward in the service department.

Since new vehicle sales have been on a steady rise for the last five years, the number of vehicles that are less than six years old coming into our service departments have continued to increase. These vehicles are our core target vehicles and allow us our highest retention possibility. So the question remains, is YOUR service department steadily growing year-over-year?

Looking at the big picture, we are able to see the overall industry growth pattern, but let’s take this a step further. The next question is what does YOUR retention look like? I’m going to quantify what I mean by retention. In my opinion, the definition of what a retained customer is varies depending on your manufacturer’s service interval. For instance, if your manufacturer recommended maintenance interval is 5,000 miles, then I would want to see two customer paid visits, per year, to be considered a retained customer. If your manufacturer recommended maintenance interval is 12,000 miles then I would consider one customer paid visit per year a retained customer. Looking at it this way, you will be able to find a figure that correlates with YOUR brand.

Why is this so important? I’m going to give you two thoughts on this; both are critical to the growth of a dealership.

Future Sales and Service Loyalty

The first reason I’m going to share is sales based. CNW Marketing Research studied owners of General Motors vehicles and correlated future sales with service loyalty. Here were their results:

  • Customers who regularly serviced their vehicles at the selling dealership became repeat vehicle buyers 86% of the time
  • Customers that occasionally service their vehicles at the selling dealership became repeat buyers 46% of the time
  • Customers who seldom serviced their vehicles at the selling dealership became repeat buyers 18% of the time
  • Customers that never serviced their vehicles at the selling dealership became repeat vehicle buyers only 8% of the time

Those numbers are just staggering. As we have just seen, service retention absolutely drives repeat dealer vehicle sales. And vehicle sales are a great long term by-product of service retention.

A Focus on Retention Leads to Total Dealership Growth

Now let’s look at the second reason that retention is so critical. It’s the immediate gratification that comes from increased service and parts gross profit. These two components make it so that if you are truly focused on retention, it will feed the whole dealership, both in the short term and long term.

Think about it this way, a retained service customer creates service and parts gross profit, they are more likely to repurchase from the same dealership and when they do, you will more than likely get the trade in. Over time, this helps every department within your dealership! So, if we know the “pie” or market is growing, and we know that increased service retention gives us an even larger slice of that larger “pie,” we start to see a positive pattern of current opportunity within our fixed operations.

Stay tuned for Part Two to learn how to capitalize on these opportunities. Subscribe to the Up to Speed blog to get our best practice articles sent directly to your inbox! 

About the author

Steve Hall

Steve Hall

Steve Hall is a full-time instructor for the NCM Institute and is responsible for the development of its Fixed Operations training curriculum, with an emphasis in express service management, collision management and parts and accessory management. For more than 25 years, Steve’s experiences have encompassed almost every aspect of the retail automotive service, parts and body shop business. He was an equity partner in two dealerships and has held management positions in all areas of auto dealership Fixed Operations, including Service and Parts Director and Vice President of Fixed Operations over 19 stores.

Permanent link to this article: http://blog.ncm20.com/2014/10/customer-retention-in-the-service-department-part-one/

2 comments

  1. David Boyle

    Enjoyed this read very much Steve. I would like to add one comment. There is a ton of data, much of which was accumulated by the various OE’s, that link the sale of the tire to retention and defection. Many years ago Honda published a chart often referred to as the waterfall chart that showed a high 20% immediate drop in retention once the customer hit that point of needing thier tires replaced. While dealers have tried to “get in” the tire business over the past 10 years, for the most part it has had little impact. Modern Tire Dealer magazine publishes a chart every year showing the market share ranking of retailers of tires. Dealers annually rank at the very bottom with less that 6%. Dealers have to find a way to grow this part of thier business if they are really going to maximize retention. We need to be constantly reminding the consumer on every visit leading up to that point that the dealership IS thier place for tires. We have a saying at my company, own the tire – own the customer. My company has taken on this challenge and we believe with tight tools and process dealers should be at the top of the market share list, not the bottom. We realize that the margins on tires are not great and that is probably why most dealers take a half-hearted approach. But when you combine the link to service retention to the powerful repurchase data you stated you could make the case that giving them away would be worth it.

    1. Steve Hall
      Steve Hall

      Thank you for the comment, and you are right on target! Tire purchase is a huge defection point and as dealers we must crack the code on this necessary retention tool. Tires are not about the margin, but rather the retention of the customer and we must continually work to gain back this market share. Unfortunately, as you stated, we as dealers have only been focused on tires for about 10 years and the tire companies have been committed this market forever. That means we must work even harder in this area to make an impact. Thanks for making a great point.

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