The gut response to market change is belt tightening. That’s often a prudent and wise action to take, but if you do, make certain cost-cutting isn’t cutting off oxygen to your business.

What do I mean?

When trends and data seem to indicate the industry tide is turning — when pundits predict slower times ahead — when Chicken Little worries, winners continue to operate using restraint and an opportunistic perspective (and approach) in preparation for most any way the market should move.

They pare expenses carefully, so cuts don’t diminish opportunity, and they stay focused on revenue generation. They practice the long view. They sacrifice margin today for retention downstream.

Smart dealers will forego big profits in F&I in exchange for bringing new customers into the family, as consultant Tommy Gibbs says, to recapture those dollars and more in the months and years through ongoing service visits.

I don’t have to tell you that pushing for margin that loses a deal costs more than the gross.

Likewise, indiscriminate cutting of technology investments might in the longer run cost the dealership more than the software’s upfront and monthly maintenance fees.

Cuts here should be heavily weighed — exercise caution, as cost-cutting revenue-generating investments can be unwise.

Consider implementing software tools for driving customer retention. Retention efforts that keep customers connected to the dealership down the road grow the business. Look at your store’s retention reports to verify this statement yourself.  Dealers that give or sell (discounted) prepaid maintenance plans keep customers coming back.

Consider one dealer group’s dealer-branded retention and service growth investment result:

• Store No. 1, fall of 2013 through late summer 2016: 760 RO/month to 1,575 a month.
• Store No. 2, fall of 2013 through late summer 2016: 270 RO/month to 670 RO/month.

Bottom line, dealer-branded retention plans keep customers returning to your dealership. Unlike OEM plans, dealer-branded plan benefits can be used only at the issuing dealership.

Scott Smith, dealer principal at the five-store dealer group Automotive Associates of Atlanta, also uses prepaid maintenance to drive retention and loyalty.

“Dealer branding has been a critical factor in our stores realizing a 20-percent to 22-percent bump in fixed absorption rates, across the board. These improvements help us be more aggressive on the retail side,” says Smith.

Not every maintenance plan delivers these benefits, Smith points out. He dropped OEM and other third-party providers’ maintenance programs, because those plans did not lock the consumer into using the dealership that issued the plan for service.

“Those other plans give consumers too much flexibility in where those plans can be employed — we wanted a program that makes sure those customers service back here,” he notes. “Customers using this retention plan maintain their cars better and therefore have fewer breakdowns.  As a result, we’ve enjoyed an 8-percent decrease in our VSC loss ratio every year for the last several years. For a big player like us, that’s a big deal.” 

Keeping customers happy and coming back is job one for every employee in the dealership. That’s why people who know their products, who can comfortably engage customers, and have a heart for serving others are foundational to customer retention.

Couple this fundamental to a structured program for retaining customers to your service department, and longer and higher retention and increased service dollars will follow. Regardless of the nature of the plan you hope to put in place, make sure it:

1. Drives consumers to your business, and especially your service department.
2. Delivers a positive experience, so customers continue to come back.
3. Has baked in accountability tools to measure the lift in customer-pay dollars for each visit, so program ROI is measurable.

Here’s what you should look for when comparing loyalty programs for your dealership:

• Digital service BDC, including a lost customer report and the tools to drive them back through your doors.
• Everything needed to ensure predictability in your service drive.
• Detailed reporting powered by DMS integration, including a summary report, monthly ROI calculations, and customer spending habits.
• Loyalty card customized for each customer and branded for the dealer.
• Laminated sell sheets for F&I to up-sell plan holders to multi-year programs.
• Customized service menu to assist up-sells on the service drive.
• Dealer-branded F&I forms.  
• Branded brochures to market the program.

At the end of the day, you should know if the plan your store uses for driving retention is actually driving customers to the service lane, as well as plan holder upsell, per visit. Finally, make sure your loyalty program provider is validating its R.O.I. to your dealership. Click here if you’d like to explore these ideas further.

Ryan Williams is president of Fidelis PPM, and is a 20-plus year veteran of the auto industry, having served in multiple dealerships as sales manager, F&I manager, and GM. You can reach him at ryan@getfidelis.com.