Dealerships today are looking for every opportunity to capture revenue whenever a customer - new or existing - visits the dealership. Precious square footage previously dedicated only to showroom floor models is now being used for selling anything from branded apparel to customized aftermarket products, while creating a welcoming atmosphere for customers that encourages them to stay awhile. Once reserved for highline dealerships only, such strategies are now working well at dealerships selling mid-priced cars and at multi-franchise locations.
Dealership Service drives have picked up on such strategies for capturing added revenue. One opportunity that's gaining momentum is cosmetic reconditioning services. Some of the services offered include: PDR (Paintless Dent Removal) to repair minor dents and dings; minor paint repairs of scratches, scrapes, creases and road rash; repairing damaged bumpers; wet sanding and buffing fine scraches; and the refinishing or straightening of alloy wheels damaged by curb rash and abrasions.
Such services, performed with quality and speed, give customers the satisfaction of driving a vehicle that always feels "brand new," while increasing revenue in the Service Department - in some case over $500,000 a year. These offerings also increase customer satisfaction -- and without increasing the customer's start-to-finish Service time.
When one considers industry and consumer trends, cosmetic reconditioning appears to be the right service at the right time.
Traditional revenue opportunities in the Service Department are declining
According to the annual J.D. Power and Associates U.S. Vehicle Dependability Study, now in its 24th year, three-year-old cars, trucks, crossover SUVs and vans (all brands sold in the U.S.) are more dependable than those manufactured even just a few years earlier. In the 2009 report, overall vehicle dependability averages were 171 PP100 (171 problems per 100 vehicles). In the 2013 report, the averages dropped to 126 PP100. That's a 26% improvement in that metric over just four years.
That's good news for car owners -- and bad news for dealerships. Obviously, fewer problems with the car mean fewer visits to the Service drive.
Furthermore, according to the NADA's 2013 State-of-the-Industry Report, net profit in the Service and Parts Departments at the average dealership was down 17.4% from 2011 to 2012, and that figure has gone down steadily since the industry's ten-year high in 2008.
Also in that NADA report, traditional Body Shop operations in dealerships continue to be less of a factor in Service drive revenue generation. The percent of dealerships with on-site body shops fell to 34 percent in 2012, from its ten-year high of about 42 percent in 2006. And dealership Body Shop sales have been relatively flat since 2009. Total dealership Fixed Operations (Service, Parts and Body Shop) sales were flat from 2011 to 2012.
Most customers want to keep their cars looking new
"No other man-made device since the shields and lances of ancient knights fulfills a man's ego like an automobile."
-- Lord William Rootes, British automotive pioneer
In most Western cities and cultures, car ownership is a sign of achievement and independence, a channel for personal growth and, sometimes, an expression of one's position in the social hierarchy.
Pride of car ownership is expressed in many ways. Certainly one of the most common is keeping the car looking new.
While studies have shown that consumers may be lax on preventative maintenance - especially in down economies - aesthetic upkeep tends to be lower cost to the car owner and, therefore, more consistently addressed. Plus, it makes good economic sense for the car owner: keeping up the car's appearance adds value at resale, or reduces penalties at the end of a lease.
Lexus of Bellevue: "Over half a million in gross profit per year"
One dealership that has found success with a cosmetic recon program in their Service drives is Lexus of Bellevue. Located near Seattle, Washington and one of nine dealerships in the O'Brien Auto Group, Lexus of Bellevue has been using a cosmetic reconditioning program in their Service Department since 2008.
General Manager of Lexus of Bellevue, Mark Babcock, said he knew a cosmetic reconditioning program would work for them because of the volume of vehicles coming through their Service drive every day with cosmetic damage. Babcock estimates that about 30% to 40% of their Service Department customers need the service. He says that about 10% of his customers buy the service, resulting in about $100,000 per month in sales, and $50,000 per month to the department. "That's over half a million in gross profit per year," said Babcock.
Getting the Lexus of Bellevue cosmetic reconditioning program to that point of productivity took some investment of space, time and training. "We considered doing this program using in-house personnel, and we also looked at using a variety of outside service providers," said Babcock. "Ultimately we decided on using a consolidated service because of the uniform quality of their work and the reliability to get the work done. Essentially, we just put a 'box' over parked Service vehicles and turned it into a profit center."
Derrick Albrecht, Service Manager at Lexus of Bellevue, says moving to an integrated repair program really helped. "Previously we had been using four different mobile vendors. By changing to the program on site, we quadrupled the volume of higher quality and precision repairs. We couldn't accomplish that magnitude using mobile outfits."
Convenience for the customer also plays a role in the success of a cosmetic reconditioning program. Dent Wizard research shows that about 60-70% of cosmetic repair sales are due strictly to the convenience factor. If not for the same-visit repair experience, most customers will leave the flaws un-repaired. That's substantial profit driving out of dealerships every hour.
The company also helped Lexus of Bellevue with training personnel on how to sell the service. Training is done on-site and at Service Advisor meetings.
Babcock says they used an incentive program to help get Service Department Advisors to focus their attention on the program.
Another benefit of the program and its training is that it reinforces the importance of doing a multi-point inspection of each vehicle when it arrives. This practice greatly reduces the expenses associated with in-Service damage claims.
Beyond increased revenues, Albrecht says the dealership has recognized other benefits, such as increased CSI scores. "Customer feedback has been very positive. Customers love the added service and convenience."
Implementing a Cosmetic Recon Program: Options and Investment
Is a cosmetic reconditioning program appropriate for every dealership Service Department? That depends on what you consider a "program."
Certainly, adding PDR to your Service menu requires a fairly low investment and operational impact. A PDR technician - an employee, an independent or part of a multi-service resource - can perform his duties using limited space and investment.
However, adding more cosmetic recon services, such as minor paint or alloy wheel repair, and thereby truly having a menu of cosmetic recon services to sell to your customers, will require space and equipment - space and equipment designed for quality, efficiency and same-day turnaround. To rationalize the program with a reasonable return on investment, a manager needs to consider the following:
Do you have the right volume of Service repair orders per day to generate the necessary volume of sales opportunities? You should look for six to eight sales opportunities per day.
Do you have the available space? Figure on approximately 1,500 square feel of dedicated, sheltered workspace.
Do you have high performers on your team of Service Advisors? These are the people who will sell the service regularly and fuel the program.
By asking yourself these questions, you may learn that your Service Department is in the right position to welcome a whole new revenue stream!