Fixed Ops Journal - October 2017 - 33

FIXED OPS JOURNAL

LABOR

continued from Page 32

all labor sales is about 75 percent, Earnest says. Its rate for customer-pay work is 75 percent, for warranty work about 80 percent and for
internal work about 73 percent.
Having the right mix of service techs helps him meet his gross profit
goals, Earnest says.
"I used to have a lot of senior techs and trainees," Earnest says. "Now
I have a lot of express lane techs and fewer senior techs."
He pays his express techs $10 to $15 an hour, while senior techs make
$20 to $26 an hour, he adds.
About 65 percent of the work his techs do is performed in the express
service lane, Earnest says, and half of his 16 techs work there. He uses
the assignment as training.
"Seventy-five percent of my techs started as express [techs] and have
moved up the ladder to become A-level techs," Earnest says. "Two have
turned into master techs."

Dissenting view
Not all industry analysts see the 73 percent gross profit guideline as
ideal.
"If I try to chase the 73 percent, all I will be obsessed with is getting to
that number," says Lee Harkins, CEO of dealer consultant M5 Management Services Inc. in Pelham, Ala. He proposes that service departments focus instead on keeping customers.
"Your gross profit percentage needs to be high enough to pay the
bills," Harkins says. "Do you want to be high gross, or low gross-high
volume?
"I may decide I want to go after customer retention" and match what
nondealership competitors, such as independent repair shops, are
charging, he says.
Erik Day is CFO and partner at Warren Henry Automotive Group in
Miami, which operates seven dealerships. He says he uses the 73 percent profit figure as a benchmark, but says he is more concerned with
"filling the shop with work."
Through May, the group reported 2017 gross profit rates for service
labor of 79 percent for customer-pay work, 85 percent for warranty
work, 78 percent for internal work and 82 percent for all work.
Day cites the diagnostic skills of the dealerships' service advisers as a
way to keep shop customers happy and gross profits high.
"The more accurately a problem is identified, the more efficient the
shop will be at fixing the problem," Day says. "The right fix the first time
is a huge metric."

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Advisers' buy-in
A service department's pay plan should offer incentives to employees to boost service lane sales, says Juan Pena, a certified public accountant and director in the automotive dealerships group at MBAF,
an accounting and advisory firm with headquarters in Miami.
A service adviser should be eligible for bonus pay based on labor
sales volume, with minimum requirements for gross profit and customer satisfaction scores, Pena says. He recommends paying advisers
5 percent of gross profit per repair order, and adding pay incentives as
they meet increasing volume targets.
Pena says, "I would pay [advisers] on every repair order they write,
whether customer-pay, warranty or internal." 

OCTOBER 2017

PAGE 33

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Table of Contents for the Digital Edition of Fixed Ops Journal - October 2017