August 2012 P&A Department Performance

Steve Jones reviews this year's service department performance data.

This month we’ll review 2012 service department performance data. We’ll compare a good-performing metric 20-group with the National Norm (NN) numbers and the averages for the Top 5 dealers in each category.

The total store statistics are included as a reference point for the performance of the service department. This helps put the numbers in context with the trending of the market overall.
We can see from the total store sales change from prior year that the Top 5 performing dealers are slowing in their growth in comparison to the group and NN dealer averages. Total store gross margins are holding pretty steady compared with last year, but the group and NN dealers are struggling to get to that target benchmark of 25 percent.
Door swings continue to increase – a very good sign that traffic is still strong compared with last year. This is particularly significant since the numbers tend to slow as fall approaches. It is interesting to note that the Top 5 dealers continue to spend more money on advertising and promotions to get customers in the door. However, their ROI for this is very good. This would not necessarily be the case if they were not holding good margins.

In the service department, gross margins continue to increase as dealers control their expenses better. Labor margins are significantly stronger than in past years. It is important to get at least a 70 percent margin (revenue less tech compensation + sublet labor) or you are unlikely to cover the expenses for this department and end up with a profit.

Repair order volume is up for most dealers, but not nearly as much as for the Top 5. My take on this is that these dealers are running service specials and doing awareness advertising wherever possible. They are using media such as their websites, email blasts and even social media to promote and grow their service business.
Personnel expense (anyone who is non-tech) seems high, but I can’t argue with the results. They are making money. If you have more gross margin, you can afford to pay more for a quality service manager and skilled service writers. These folks tend to make you more money.

The target for the parts sold to repair order labor ratio is 1:1. All these dealers are close to that mark.

As might be expected, billed hours are up. The “billed hours per repair order” reflects the service writers’ ability to sell service. The target is to average two hours per repair order, but only the Top 5 dealers are hitting the mark. Service writer training is very important. Even a slight increase here can make a big difference in the overall profits of the department. Labor sales per repair order are obviously directly connected to this.

The targets for proficiency (billed hours divided by available hours) and productivity (actual hours on the repair orders divided by available hours) are 85 percent. Only the Top 5 are on target here. These measure the overall performance of the department. It is not easy to hit this number, but it is important to try hard to get there. The technician’s ability is measured by efficiency (billed hours divided by actual hours on ROs). The target is 100 percent, but can be much higher if they can beat flat rate consistently. The Top 5 number indicates that they are focusing on increasing the percentage of tune-ups and interval services and other quick-turn jobs where beating flat rate is very possible.

Again, the dollars sold per employee is a very important measurement of the effectiveness and productivity of your staff. Monitor this closely. Divide the number shown by the number of months (nine in this case) to get a monthly average. You may need to actually increase staff to hit the kind of returns you should get. I’ve seen instances where a lack of service writers or techs stifled production and resulted in service business going to other dealerships.

Have questions? Feel free to contact me for information, explanation or to discuss how GSA can help you grow your business profitably.

Steve Jones, GSA senior projects manager, outlines dealerships’ best business practices to boost margins, increase profitability and retain employees. His monthly column recaps critical measurements used by the leading 20-group dealers. GSA is recognized as the industry’s No. 1 authority on dealer profitability.

Access to the new Voyager 5 data reporting and analysis system is available to any dealership for a nominal fee.

For more information on GSA’s data reporting system, dealer 20-groups, on-site consulting or training, email [email protected] or visit www.gartsutton.com.

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