Fixed Ops Journal - February 2021 - F12

FIXED OPS JOURNAL

Focus on customer relations
to keep the dealership healthy

on Parker, who worked in dealership service departments
for more than 40 years, including 12 as the manager at a
Chevrolet store in the San Diego area,
viewed fixed absorption the same way a
doctor regards a patient's pulse.
" It's an indicator of how healthy you
are, but it doesn't really tell the whole story as to the health of the individual, " he
says. " It's no different in a dealership because there are many ways to get to that
number. "
Dealerships can boost their fixed absorption by cutting costs or trying to
squeeze every possible dime out of customers through aggressive selling, but
Parker warns those are short-term fixes.
" If you sell them hard based on fear,
customers are going to go away thinking
they paid too much and that they didn't
need it, " he says. " As soon as they get that
sense, you're going to lose those customers. It has to be done with a well-balanced
consultative sales approach instead of
fear-based. "

ABSORPTION
continued from Page 11

absorption as gross profit from fixed operations being able to cover all expenses. Reaching 100 percent is a worthy goal, he says, because any revenue outside of fixed operations
becomes profit. He doubts many dealerships
can achieve that, however, especially ones in
regions where real estate prices, labor and
other costs are higher.
He thinks fixed absorption is often a misused buzzword that steers dealerships in
wrong directions, such as cutting costs instead of building revenue. Instead of shooting
for a number, Harkins suggests looking at
fixed absorption as a cause-and-effect scenario: The amount of fixed absorption is the effect, and how well a service department operates and treats customers is the cause.
" Our efforts focus on what will cause a dealership to get to 100 percent, " he says. " We're
talking about maximizing the production of
technicians, maximizing the customer experience. "
If a dealership calculates that its fixed ab-

PAGE 12

FEBRUARY 2021

Parker:
Fear-based
sales lose
customers.

Dealerships that focus on customer retention will build a longer-lasting high absorption rate and sell more cars, adds Parker, who served on General Motors' national
advisory board on fixed operations.
" When a car hits 4 or 5 years old, there's
definitely more opportunity, " he says.
" Those are the ones that influence your
sales numbers, the hours per [repair order], because they start needing more repairs. When [the customer] is ready to
buy his next car, you've taken care of him,
and you're the first dealer he thinks of. "
- Rick Popely

Gross profit target
gets staff motivated
Some dealerships measure performance in the service department in ways other than fixed absorption.
Steve Quezada, service manager at West Point
Buick-GMC in Houston, for example, forecasts
monthly revenue and sets a goal of retaining 35 percent of gross profit from fixed operations. And, he
says, " We have always hit our forecast or better. "
The monthly targets are based
on the number of working days
and the average gross per hour
booked by techs. He posts the
targets and progress updates in
the shop as incentives. If the targets are met, techs get a bonus of
75 cents to $1.25 for each hour
they booked that month. Service
advisers get spiffs based on labor Quezada: Spiffs
hours and parts sold.
spur teamwork.
" This encourages them to work
as a team to hit our goal, " Quezada says. " It's hard for
me to pinpoint one or two things that I do because
it's a team effort, and you have to have everyone on
board. "
A key enabler, Quezada adds, is high customer retention, which runs about 75 percent at West Point
Buick-GMC on vehicles 1 to 6 years old.
- Rick Popely

sorption is 50 percent or lower, Harkins says a
poor customer experience and low customer
retention are probable causes.
" The first thing I would do is evaluate the
service operation, " he says. " Are you maximizing the opportunities, are you earning [customers'] business and keeping them coming
back? "

Mileage revelation
Harkins also advises looking at the average
mileage of the vehicles serviced.
" If the average mileage is 40,000, but some
[competitors] are averaging 60,000, then you
probably have an opportunity to improve
your experience to keep that customer coming back, " he says.
Atwood says a Cox Automotive service study
shows that service customer retention also
boosts vehicle sales.
" We tell our students that 74 percent of
those customers that service with you on a
regular basis will buy another car from you, as
opposed to only 35 percent who do not service with you will buy another car from you, "
he says.

Harkins: If fixed absorption is low, poor
customer experience could be a reason.

Atwood says fixed absorption is a key metric
for dealerships to monitor against independent repair shops, which have fewer expenses
to cover.
" I tell my students, the independent shops
that are open seven days a week, trying to
steal your customers, they're 100 percent absorbed, " he says. " If they weren't, they
wouldn't be in business tomorrow, so why are
you so far behind? " 

Fixed Ops Journal - February 2021

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