The Key to Future Profitability is Service Retention

The age-old axiom in the automotive business, "Sales sell them, but service keeps them," has never been more relevant or crucial than today.

The Rollercoaster of Dealership Sales

Recent disruptions in the industry have created a turbulent sales environment for dealerships. From dealers dealing with excessive inventory to insufficient stock, profit margins have swung wildly. These fluctuations have only intensified with issues like labor strikes and electric-vehicle mandates further roiling the market. I’m sure you get the picture!

The Role of Service Retention

In this shifting landscape, service retention emerges as a key strategy. Customers need consistent, high-quality service that makes them feel valued, especially during market conditions like inventory shortages that compel them to keep their vehicles for a longer period. According to S&P Global Mobility, the average vehicle on the road is now over 12 years old and climbing. Dealerships excelling in service retention not only maintain a steady revenue stream from parts and service but also set the stage for future vehicle sales. According to the National Automobile Dealers Association, a satisfied service customer has a 75% likelihood of making his or her next purchase from the same dealership. These trade-ins also delight dealership preowned sales managers, as they are often the most desirable used cars to have in stock.

The Three Pillars of Service Retention

Creating effective service retention involves a trifecta of elements: people, process and communication.

1. The most important element is the people. Staff in service roles must possess certain attributes, such as excellent listening skills, outgoing personalities, and a thick skin to handle customer complaints. These qualities help forge a personal connection with customers and encourage repeat business.
2. Having the right staff is a great start, but dealerships must also implement seamless processes. This includes ease of appointment-making, both online and by phone; clear signage directing customers to service areas; accurate service time estimates; and transparent pricing. Processes must come into play the moment a customer decides to come to the dealership for a service.
3. Effective communication ties the entire customer experience together. Ensure there is a proper greeting from the moment customers enter the facility. For example, providing a waiting area with Wi-Fi where customers can effectively use their time can greatly enhance their experience. Keeping the customer informed at all stages enhances satisfaction and reduces anxiety, making their next service visit something to dread less. Let customers know their anticipated wait times.

Addressing Customer Concerns

One of the most common questions from customers is, "How much will this cost?" A straightforward answer that indicates warranty coverage can do wonders for customer retention. Conversely, a high out-of-pocket cost may drive customers to explore more economical repair options.

Vehicle service contracts are a critical lynchpin for service retention and in keeping customers engaged in the cycle of "buy here, service here, trade-in, and buy here again." It's imperative for dealerships to review their strategies for selling VSCs, both at the point-of-sale and post-sale. When they have a VSC and don’t have to pay, they stay!

The Threat from Third Parties

Additionally, dealers must be vigilant about third-party marketers who try to lure away customers with misleading advertisements for subpar coverage. Consumers who purchase these may think they are being sold through your dealership. These lesser contracts lead to customers thinking they have coverage when in fact, they  oftentimes don’t, which is frustrating for them and many times a challenging situation for your service drive.

Building service retention is a continuous challenge that requires concerted efforts in customer coverage, hiring the right people, implementing efficient processes, and using effective, customer-centric communication. Selling your customers a VSC that they need will keep them safe and secure with their vehicle purchase. Dealers who succeed at this stand to reap the benefits of a more stable and profitable business model, resilient despite the volatility of vehicle sales.

Liebler is divisional vice president at Automotive Product Consultants.

EDITOR’S NOTE: This article was authored and edited according to F&I and Showroom editorial standards and style. Opinions expressed may not reflect that of the publication.