Education & Distance Learning Enthusiasts- Coping with the high cost of servicing cars

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Coping with the high cost of servicing cars - automobile dealers

Ward's Dealer Business - March 1, 1997

The cost of running a state-of-the-art service department keeps rising but some say the new expenses are justified.

"There's more sophisticated computer equipment in a new car," says Leon Nelson, service manager at Dobles Chevrolet-Geo in Manchester, N.H., "than there was on the moon missions."

There is no denying that today's cars are considerably more complex - and expensive - to service than those of the recent past. With the new generation of technologically advanced vehicles has come, also, a wave of new and pricey equipment required for servicing those vehicles. Some dealers say the cost of operating a service department has doubled, even tripled, in recent years.

"A multi-franchise dealership is usually required to have an entire array of diagnostic equipment for each different manufacturer," says Jim Black, service director at Al Packer Ford in Baltimore. "We're getting ready to install a $42,000 alignment machine for VW. Isuzu just came out with a new pentium processor that you need to reprogram the processors in their cars. And, of course, Ford has their own make-specific service equipment. Our new service bay diagnostic system (SBDS) from Ford cost $45,000. We also have a Lincoln-Mercury store, so make that $90,000."

With advances in communication technology came the promise of lower training costs, since training sessions would now be conducted onsite, using electronic teaching methods. "But then we got our first monthly bill for the Distance Learning Center," says Black. "All the training materials and shop manuals are now on CD ROM, which is great. It saves us a lot of time getting information we need. But it all comes with monthly fees that weren't there before".

The cost of new equipment has eaten into service profit margins, says Black.

"I'd say that I now spend 5 percent of gross service revenue on equipment upgrades and training, whereas five years ago, that figure was only about 1 percent."

Mike Greenway, service director of Toyota of Richardson, near Dallas, estimates that his new equipment costs have probably doubled in the last five years.

"Each model year, we receive $2,000 to $3,000 worth of new equipment that we are required to buy because of changes on new models," says Greenway. "We have what amounts to a different tool box for each model year."

Manufacturers are not the only source of new equipment mandates; state and federal government agencies are also responsible for driving up the operating costs of dealership service departments, especially in areas of emission control. But, as Greenway points out, everyone, including independent service shops, is faced with the same costs for government-mandated service equipment.

In some cases, it's the dealerships themselves that insist on spending whatever it takes to keep their service departments in a position of technological leadership in their markets.

"We're very aggressive," says Tim Johnson, service manager at Earnhardt's Gilbert Dodge, near Phoenix, "in purchasing equipment that will make our technical staff more efficient and better able to serve our customers."

The Silver Lining

Staying competitive is the greatest challenge for most service managers these days. Although manufacturer-specific service equipment can be costly, such equipment also gives dealerships an edge in providing highly technical repair capability, says Andy Jabsen, service manager at Showcase Honda in Phoenix.

"The marketplace may determine the rates for non-specialized work," says Jabsen. "But I can charge variable labor rates - up to $62 per hour - for complex work that requires a high level of technical expertise and special equipment, such as electrical wiring problem diagnosis or correcting a fuel injection drivability problem."

To increase traffic in the service department as a way to compensate for higher equipment costs, Jabsen has put his computer system to work as a marketing tool. He makes quarterly mailings of up to 30,000 service reminders and other customer contact messages. His total 1996 budget for fixed operations promotion was over $200,000.

"I have the benefit of being computer-literate," Jabsen says. "The computer allows me to target current and potential customers by all sorts of demographic and vehicle history parameters. We have a very high customer retention rate - in the range of 65 percent - and that's due in large part to how we use the computer to merchandise our service department."

Toyota of Richardson's Mike Greenway also gets high mileage out of his dealership's investment in technology and staff training.

"Our main competition comes from independents, not from other Toyota stores. So, in our direct mail, we talk about our master technicians, the advanced training required to become a master tech, and our state-of-the-art service facility.

"Ten years ago, we didn't have the computer capability to obtain highly targeted customer data. We had to take more of a shotgun approach to merchandising. But the computer allows us to optimize the effectiveness of our advertising dollars."

Andy Jabsen agrees that the investment in technology, including computer equipment, can pay for itself many times over. "If we're a little slow in the shop and I want to get in some specific type of work during the next week, I can run a sort, get a list, put my people, on the phone to call people and rustle up some appointments. It gives me a real edge.

"But you have to stay aggressive in merchandising service business. You never get to sit back and say, 'hey, I had a great week last week.' You always have to be planning what you're going to do to have an even better one next week."

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