May 2009 - Feature
Driving Profits Through the Service Lane
By Jorge Moas
With less traffic and lower profit margins, increasing gross profit is an almost impossible task for any sales department these days. The same could be said about F&I departments, which are seeing more cash deals, as well as tighter advances and stricter credit restrictions. So where does a dealer look to increase profits in a market like today’s? What about the service department? It’s the one sales department which consistently sees more traffic than your showroom, and gets more touches than your F&I department.
The fact is today’s economic downturn is playing right into the hands of your service department, as owners keep their vehicles longer than ever before. And with approximately 249 million vehicles on the road today, one has to wonder if all of these vehicle owners have money set aside for any unforeseen repairs. In fact, that’s a perfect discovery question your service writer can use to introduce a service contract to his or her customer.
Like F&I, successfully selling service contracts in the service drive really does come down to process and people. Here are a few tips and recommendations to get you started.
Gaining Profit and Customer Loyalty in the Service Lane
Before I introduce the process for selling service contracts in the service drive, there are a few questions that need to be answered: Why would I want to install this process in my store? And how do I get started and ensure the process works?
There are several reasons why a dealership would want to install this process. The two main reasons that come to mind are customer retention and fixed-operations profitability. Let’s look at customer retention first.
At a time where everyone is looking to retain customers, it’s important to remember that customer retention starts with relationships. And relationships are started by doing something that sets you apart from your competition.
I recommend that service writers ask customers if they’ve purchased a service contract during the write-up process. A “no” answer will set the stage for the service contract discussion later on in the process. Just remember to restate the primary reason for the customer’s visit before moving into the sale of the service contract. This will show your customer that his or her concern is your No. 1 priority.
The best way for a service writer to jump into the service contract discussion is to do what most F&I managers are trained to do: ask the customer how long he or she intends to keep his or her vehicle. This will allow the service writer to select a term that fits the customer’s needs. Next, he or she should explain the benefits of the service contract, such as no out-of-pocket expenses for repairs, rental and towing reimbursement, travel interruption coverage, and, most of all, the peace of mind of knowing one has protection for unforeseen repair expenses.
If properly done, a service contract presentation should demonstrate to the customer that the service& writer is looking out for his or her best interest. It should also go a long way in building trust with that customer, which leads to repeat business.
Another reason why dealerships should look to their service departments to move service contracts is for the fixed-operations profitability. The dealership benefits first through the sale of the contract. It then benefits parts and labor sales when repairs are made. For instance, let’s say your service department generates 1,000 repair orders a month. If you sold the service contract to 1 percent of your customers per month with an average gross profit of $800 per sale, you’d benefit from $8,000 of additional gross per month.