Fixed Ops Journal - August 2019 - F25

FIXED OPS JOURNAL

STAIR-STEP

"We are not going to race to
the bottom to hit the sales
objectives. In a race to the
bottom, you typically get
customers who aren't loyal
and don't return for service."

Without repeat customers coming back to
the dealership for service and maintenance,
Richter says, service absorption rates decline.
continued from previous page
That, in turn, puts more pressure on the sales
they're interested in is getting the cheapest tires,
department to make up for lost fixed ops reveoil changes and so forth that they can get. It's all
nue - a difficult proposition when a dealerabout the lowest price, not dealer loyalty."
ship already is selling cars at below invoice
Wright says he does not oppose factory sales
cost just to meet sales quotas, he notes.
incentive programs and volume bonuses, as
Richter says the adverse impact of stair-step
long as their goals are reasonable. "But the numincentives can ripple throughout a fixed ops
bers are realistic, not the kind that force you to go
DAVE WRIGHT, a Nissan dealer
department, especially if the dealership isn't a
below market price just to get a sale," he says.
in Hiawatha, Iowa
large parts wholesaler that can generate reveScott Smith is president of Smith Automotive
nue by selling to other dealers and indepenGroup in Atlanta and incoming chairman of the
dent repair and body shops.
Nissan National Dealer Advisory Board. He says
"Some dealerships I work with sell parts only through the shop - no
the stair-step program adversely affects fixed ops revenue and service abwholesaling," he says.
sorption rates at two of his group's four Nissan dealerships.
"So the shop becomes even more critical, because that's where the
At those dealerships, he says, about 75 percent of buyers are subprime
majority of these parts come from."
customers. At his other two Nissan stores, he says, it's about 25 percent.
In other instances, he adds, smaller Nissan dealerships that sought to
"Fixed ops revenue grows faster at the two stores with less subprime buymake up for lost fixed ops revenue were pushed into becoming parts
ers, so there' your acid test," Smith says. "You want customers with the
wholesalers. But they got squeezed there, too, he says, because of Niswherewithal to come back for service and who want to protect their investsan's parts return allowance rate, which earlier this year stood at 2 perment. We've had growth in market share [in Atlanta], but our fixed ops
cent of total monthly parts purchases. That return policy could force a
haven't proportionately caught up with that increase."
dealership to keep more obsolete parts in stock, he argues.
Other Nissan dealers say they have seen no link at their stores between
Richter says Nissan has raised its return rate to 3 percent for the rest of
the stair-step program and service retention.
the year. The automaker did not respond to a request to confirm that
"We're a big fixed ops player, and I don't see any correlation ," says Ray
change. 
Brandt, CEO of Ray Brandt Automotive Group, which operates 15 dealerships in Louisiana and Mississippi, including two Nissan stores. "I
don't agree at all with that."
Wayne Siegel is president of Legend Auto Group in Amityville, N.Y.,
which operates four dealerships, including a Nissan store. He says he
has heard of some Nissan dealers selling more vehicles to subprime
customers to meet stair-step quotas.
"But I haven't heard that it has reached a point where those customers
can't afford to service their cars," Siegel says. "It's a reach for people to
say it affects their [service] retention percentage."
Former Nissan CEO Carlos Ghosn promoted the incentive program
this decade as part of his ambitious strategy to increase the automaker's
U.S. new-vehicle market share to 10 percent, a figure that was briefly
reached. The program rewards dealerships with increasingly larger
per-vehicle cash bonuses as they hit progressively higher monthly,
quarterly or year-end sales quotas.
The automaker's new leaders say they want to improve relations with
U.S. Nissan dealers and shift their approach to retail sales. Many Nissan
dealers have scorned and rejected the stair-step plan, complaining that
it promotes discounting, effectively forces some dealerships to pay
more to the factory for vehicles than other stores, and threatens the
profitability of their service departments and parts counters.
Richter says he's seen negative effects of the program on the fixed operations departments of two Nissan dealerships that one of his clients
owns, as well as a store in Georgia owned by another client. He declined
to name the dealerships or quantify the negative impacts in terms of reduced repair orders and revenue.
But he noted that the first client's stores are "struggling to meet even a
20 percent closing rate" on additional-service recommendations made
by service advisers. That compares with a rate of 40 percent or more at
other dealerships the client owns, Richter says. The Georgia store is in a
smaller market but is experiencing similar issues, he adds.

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AUGUST 2019

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Fixed Ops Journal - August 2019

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