Fixed Ops Journal - February 2021 - F11

Focus: Finding business

FIXED OPS JOURNAL ILLUSTRATION

Splitting the cost
The NADA Academy defines fixed
absorption as the ability to cover all
of a dealership's expenses from fixed
operations and used-vehicle sales.
Here is what the academy
recommends dealerships aim for to
achieve 100% absorption.
Fixed operations ...........60% of costs
Used-vehicle sales ........40% of costs
Contributions from fixed operations
departments:
Service department ...................30%
Parts department ......................20%
Body shop* ..............................10%
*If there isn't a body shop, service should absorb
35% and parts 25%.

all of a sudden we go on lockdown again and
you can't sell cars but you can service them,
you better be close to 60 percent absorbed
with service, or you aren't going to survive. "

Gross profit potential
If a dealership lags well below 60 percent,
Atwood advises looking first at gross profits
from fixed operations. Ideally, dealers should
be retaining 38 percent of the gross from parts
they sell, 74 percent of service labor and 65
percent of body shop labor.
Atwood says most dealership managers and
owners come from sales and may not fully
grasp the gross profit potential of fixed operations.
" When they sell a new car, they make a
whopping 5 percent gross, " he says. " If you sell
[service] labor, you make 74 percent gross.
That's where the money is made.

Dealerships looking to maximize fixed
absorption should adopt policies that
drive more business to the service
department and improve the productivity
of their staff. That's the advice of Bob
Atwood, management instructor at the
NADA Academy, and Lee Harkins, CEO
of M5 Management Services, a service
department consultancy and training
company.
Some advice they shared:
 Service hours should match or exceed
those of the sales department,
Atwood says. Customers go elsewhere
because independent shops have
more convenient hours. If service
business is slow during the evening,
have techs recondition used cars and
perform pre-delivery inspections.
 At most dealerships, a high
percentage of service customers bring
in newer cars that are still under
warranty. That's not where the money
is, Harkins says. The national average
for service retention is about 35%.
Improving service loyalty will bring
more older cars to the shop.
 All the used vehicles a dealership
sells will need service, so go after
those customers as well - even if
they bought a vehicle from a different
brand, Atwood says. If your
technicians reconditioned a used car
from a different brand, they can
service it, too.
 Every service department finds
needed repairs during multipoint
inspections, but selling those repairs
is the hard part, especially if it's over
the phone. Sending a photo or video
by text removes doubt and builds
confidence. " Even though the
customer doesn't know what a torn
bushing is, if they can see this jagged
piece of rubber on their car, they say,
'Oh, yeah, I do need that.' It makes
trying to explain things a lot easier, "
Atwood says.

" As [dealership managers] go through the
academy, we show them that if they aren't at
100 percent efficiency - hours billed or produced divided by hours available - they are
not maximizing their grossing opportunities
in service because they are not selling all the
hours they have available every day. "
Lee Harkins, CEO of M5 Management Services, a fixed ops consulting firm, defines fixed
see ABSORPTION, Page 12

FEBRUARY 2021

PAGE 11
Fixed Ops Journal - February 2021

Table of Contents for the Digital Edition of Fixed Ops Journal - February 2021
