Lessons Learned from Auto Dealers
The economy’s poor performance is very much in the news as of late, but most RV dealers don’t need to read the paper to know that; it’s showing up on the lot in the form of substantially reduced sales.
The U.S. auto industry is facing the same challenges, and then some. It’s interesting to note, however, that income from auto dealers’ service departments is not following the downward trend. Instead, automobile service departments are now bringing in increasing dollar amounts, according to the National Automobile Dealers Association’s 2008 report, released in May 2008. The 2009 report has not yet been compiled.
RV dealers can take advantage of the situation, as well. The questions are, how and why?
What’s Happening in the Auto Industry?
According to the NADA’s report, new-car sales were down 2.5 percent in 2007 and the trend is expected to continue with a 3 percent decline throughout 2008.
Contrary to new-unit sales, however, service and parts sales have been steadily growing since 2002, according to the NADA report. In 2007, service and parts sales in the “average dealership profile” totaled slightly more than $4 million, making up 12 percent of the dealer’s total sales. That figure is up from $3.7 million and 11.8 percent in 2002.
Even as service departments contribute an increasing percentage of the dealer’s total profit, service work is still bleeding into independent service centers. New-car dealers, working to counteract the movement, have made a “major investment in service and parts to beef up customer satisfaction,” according to NADA.
That investment has paid off for many dealers, as 2007 figures showed that service and parts sales were nearly $84 billion in 2007, up from $80.5 billion in 2006. The increase, attributed to “competitive pricing and upgraded facilities,” also shows that dealers hired more techs and provided more service stalls.
The real number, however, isn’t the actual service sales figure, but the percentage of a dealer’s fixed overhead expenses that the service department pays for, according to Don Reed, CEO of RV Max, an automotive and RV dealer training group, a number he refers to as the service and parts absorption. He states the national average is about 55 percent, which is “not a great job.”
With independent service centers claiming 70 percent of the service market, the growth in service and parts sales is significant, but also shows that more service business is available, according to Tony Molla, vice president of communications at the National Institute for Automotive Service Excellence.
This is where current economic conditions factor in; the reason for both increased demand in service departments and flagging new-vehicle sales points toward consumers tightening their belts. Drivers who opt to keep their current vehicle longer are, of necessity, going to require more maintenance to keep that vehicle roadworthy.
“Anecdotally I can tell you that the aftermarket is seeing an increase in service work,” Molla says. “It’s mostly maintenance; about 70 percent maintenance vs. 30 percent repair. Drivers who are not buying new have to maintain their old cars. Where they normally might say ‘I’ll just nurse it along until I trade it in’ are now saying ‘I need to get three more years out of this car,’ and they go ahead and have the repair work done. I’d be shocked if the trend goes anywhere but up; it’s just a question of how much up is it.”
What Does This Mean to RV Dealers?
Most RV dealers have already felt the new-unit sales pitch; if auto buyers aren’t purchasing new $30,000 cars in the current economy, then many RV owners aren’t buying new units that cost considerably more.
However, the same truth regarding service work applies; if RV owners are keeping their older units, they will need more maintenance. Dealers can work to make sure those RV owners are coming to them for service, rather than independent service centers.
“It doesn’t matter which industry; if people are not buying new or used RVs or cars and trucks, that means they’re keeping the ones they have longer,” says Reed. “That turns into a thing called pent-up demand. The pent-up demand in the auto industry is about four times higher, with 870,000 buyers nationally waiting to buy a vehicle; that’s four times higher than any year in last eight to 10 years.
“The same thing is going on in the RV world,” Reed adds. “If you keep it longer, that means it is going to require more service, maintenance and repairs.”
On average nationwide, service and parts account for between 7 and 12 percent of an RV dealer’s sales revenue – “a deceptively small amount,” according to Pat Kennedy of dealer training firm Spader Business Management. About 70 percent of that revenue comes from sales, while service and parts account for between 25 and 30 percent of a dealer’s total gross margin, he says.
Â Perhaps not surprisingly, independent RV service facilities are enjoying a boom in business. Even when compared to dismal new-RV sales, that shows that RV owners are still willing to spend money to enjoy their motorhomes and trailers.
“The No. 1 reason they’re booming and in a growth-mode when RV dealers are in a downward spiral is because they understand that customers who keep these RVs longer are going to need more work,” Reed says. “They also understand that their new and used RV dealer competitors are getting out of service, which is driving more customers their way.
“RV dealers need to focus on reaching out to their customer base and giving them reasons to come in to the service or parts departments to get their RVs serviced and repaired,” he says.
Make it Work for You
The demand for service work is out there, but how can a dealer make sure to realize it in his own business?
“Many dealers are very proactive when dealing with sales department issues, but are reactive when dealing with service,” says Kennedy. “Service is viewed as a ‘necessary evil’ as opposed to a profit (and customer) generating department. As a result, stand-alone service centers have flourished in many markets.
“Imagine an independent chain offering nothing but service reaching nationwide prominence before it ever sold its first unit. The Camping World phenomenon on the surface doesn’t make any sense. After all, who would have predicted that consumers would defect from dealers in the numbers they have?” Kennedy asks rhetorically. “One would have imagined that after trusting the dealer with their life savings they’d trust the dealer with a few hundred bucks for accessories and maintenance. Instead, customers have flocked to independents for their accessory maintenance needs.
“As dealers, instead of being resentful of the success of the independent, what we have to ask is ‘Why?’ and ‘What can we do to keep our customers coming back to our dealerships?’”
The key factors are value and benefits to the consumer, as well as convenience.
“The RV dealer needs to be giving customers reasons to come back in. The other thing a lot of dealers are missing out on is not doing a lot of light mechanical; they only work on the exterior and interior of the coach. They don’t get involved with oil changes, tires, alignments, belts, hoses, brakes. That’s a huge missed opportunity,” Reed says.
“An RV owner would much rather have one-stop shopping so to speak; if they have an issue with the generator, air conditioning, refrigerator or slide out, they have to go to the dealer, and it would be more convenient while it’s there to get maintenance and repair work on power train as opposed to having to pick it up and tow or drive it to a truck facility or independent repair shop.”
Reed says that many RV dealers, while searching for ways to cut back budgets, are trimming their service departments – a practice that is counterproductive in the extreme.
“Unfortunately, during times like these, in the RV or auto industry, we have a very high number of dealers who immediately start to save their way into a profit so they start laying productive people off. They may lay off the service advisor or technicians, thinking they’re saving money, when in actuality just the opposite happens. They lose money in most cases.
“If you’re going to lay somebody off, lay off a nonproductive member of administration. It’s a knee-jerk reaction; a dealer lost money, so he’ll lay off an advisor or technician. Those people are revenue producers. The second problem with that scenario is that you now just reduced your ability to provide customers with the proper level of service.”
Not only does Reed suggest keeping technicians, he also recommends investing in additional techs, training or even tools and equipment for the service department. With the increasing call for maintenance and repairs, he estimates the return on investment will not take long to realize.
Bringing in Customers
So, how to get these customers through the service bays of your dealership? Reed suggests simple marketing tools such as direct mail, e-mail and phone calls over the “shotgun blast” approach of traditional advertising. He says dealers should gather e-mail addresses from all customers, and utilizing computerized calling services that call during daytime hours to avoid the “nuisance factor” of calling in the evening. The call, mail or e-mail can be anything from a simple greeting to the customer to a coupon or offer to bring them into the dealer.
“The point is to keep your name in front of the customer. It’s not a one-shot deal. You can’t send a letter or e-mail and expect something magical to happen,” he says. “The problem is most RV dealers don’t stay in contact with their customers. They just open the door every day and wait for somebody to show up.
“They need to get aggressive and communicate with customers. It doesn’t have to be a sales message; they can just say ‘Hey, we care, we want to save you money on maintenance and help you any way we can, we haven’t seen you in a while,’ and offer some kind of free gift for just coming by. Let them know you care and you want them to come back.”
Kennedy echoes Reed’s remarks, and includes the necessity of a positive experience at the dealer.
“Start by thinking about service as a vital sales opportunity, and dedicate appropriate resources and energy to building a world-class service environment,” he says.“A great service department is not only the financial core of a business built to last, it is the single most powerful customer retention tool imaginable. The link between the first unit purchase to the repeat purchase is the quality service experiences that fill the middle. Done properly, these experiences are positive links that keep the dealership in the forefront of the consumer’s mind whenever they think about RVs.”
Personal service helps to build a positive customer experience. Small touches, including a comfortable waiting room with entertainment and refreshments, or just a salesman willing to converse with a bored service customer, can help build customer loyalty and repeat business. The personal touch is key; Kennedy compares an effective service advisor to a top-performing salesperson.
“The service advisor is undoubtedly the key individual in increasing service volume. Service advisors need to approach the service drive in the same way a high-performing salesperson approaches a unit sales opportunity. That is: with great enthusiasm and highly effective sales processes that can be measured. Service advisors should follow a systematic approach when checking in a customer’s unit for service in order to create a needs assessment on every unit coming in for service,” he says.
Reed and Kennedy both list a number of small courtesies as ways to imprint upon the customer your commitment to service. From checking batteries and tire pressure to washing the vehicle or providing drop-off and pick-up service, customers will remember and often return.
Emphasizing the service department is one of the best ways to not only survive today’s economic conditions but also prosper – and when the economy is looking up again, those service customers may return to purchase a new RV.
“Service is not a better or worse bet, it is the entire bet,” Kennedy says. “At today’s margins, it is impossible to afford the acquisition cost of new customers: retention of existing customers by becoming their total aftermarket service solution is the safest way of building future sales.A thriving and profitable service department is the best guarantor of future sales success.”