When a customer buys a vehicle from a dealership, that transaction in and of itself is not the only important part of that visit.

So, too, is establishing a vehicle-service relationship between that shopper and the dealership.

That’s crucial, not only from the standpoint of driving a segment of their business with high margins, but also retaining a customer for service, who might otherwise visit an aftermarket shop instead.

“Customers defect for a variety of reasons, but two of them are: they perceive that it’s a better experience (at an aftermarket location) or they perceive that it’s less expensive,” said Jim Roche of Xtime, a Cox Automotive-owned provider of retention solutions for the retail auto business.

“And actually, the data shows that the aftermarket being less expensive than the dealer is a myth. Dealers are priced competitively when it comes to the aftermarket; we’ve just not done a very good job of communicating that our prices are competitive,” Roche said in a phone interview. “And the other (reason) is we need to provide that great experience from cradle to grave, so that the vehicle owner never wants to leave. Keep in mind that they bought the car from the dealer, right?

“So, why would they leave if they are satisfied, and they’ve been having a very, very good ownership experience?”

Roche finds that introducing the vehicle buyer to the service department at time of purchase and scheduling the first service appointment right then and there helps set a precedent. The service experience begins when the shopper is buying the car, he said.

“The last stats were that 41 percent of vehicle owners reported that they were introduced to the service department at the time of purchase, but 53 percent said it came into play when they were going to decide where to repair the vehicle,” Roche said. “So, clearly it is important.”

Xtime market research says customers are 2.3 times as likely to return to the dealer when they’re introduced to service department when they purchase.

More emphasis on service, but room for growth?

According to the NADA Data 2016 report from the National Automobile Dealers Association, there were 259 million customer repair orders at franchised dealerships last year, beating prior-year figures by 6.5 percent.

Service contract penetration (for new and used) was up 1 percent at 43.7 percent, NADA’s report said.

“More and more consumers are choosing new-car dealerships for their service needs,” NADA senior economist Patrick Manzi said in a news release. “Express service, such oil changes, and non-warranty repair orders at dealerships, on average, increased by 10.9 percent and 4.2 percent, respectively, in 2016. This increase demonstrates that consumers value the expertise of the highly-trained and factory-certified technicians employed at new-vehicle dealerships.”

That said, there is likely room for significantly more growth.  And that could be pivotal as the new-car SAAR plateaus and perhaps, all while new- and used-car margins remain in single-digit percentages, Roche said.

“We’re looking at declining volume and single-digit margins, versus a service department … less than 1 in 3 service visits in the United States currently takes place at a dealership. But when it does happen at a dealership, the average gross profit is 46 percent,” Roche said. “So if you’re focused on profitable growth, I don’t know how you can be thinking about profitable growth without putting a lot of energy and focus on your service department. “

According to the NADA report, the service/parts department at the average franchised store was pulling in annual gross profits of just under $3.2 million last year. That compares to $1.88 million for the new-car department and just under $1.69 million on the used-car side. 

Over at AutoNation, the service department is part of a larger shift toward other parts of the business beyond just selling new cars. During this month’s 2017 Automotive Forum in New York (portions of which were webcast and viewed by Auto Remarketing), chief executive Mike Jackson shared some of that strategy.

“We will change where we source parts to get the lower cost and a better deal, and we’ll brand them AutoNation,” he said. “And we’re going to expand free-standing unfranchised customer repair centers and pre-owned centers with the AutoNation brand on it, and grow our business with what we can control.”  

Along those same lines, things like dealer-branded prepaid maintenance plans can help stores build “goodwill” with the customer, says retention company Fidelis PPM.

“A dealership in tune with customer dynamics and that offers dealer-branded prepaid maintenance options is not only looking out for their customers but is also encouraging a proper vehicle maintenance habit,”  Fidelis PPM president Ryan Williams said in a news release. “We know regularly maintained vehicles are more roadworthy, safe, and economical.”

That can be particularly vital, given that study from AAA found 64 million Americans could not take care of a $500 unexpected repair bill without incurring debt, Fidelis said.

But purchasing pre-paid (and discounted) routine maintenance services from the dealer can save the car-buyer money, Fidelis PPM argues.

“That savings can make it easier for consumers to visit their dealers’ service department more regularly to keep their vehicle running right and safely,” Williams said.

Changes in service department itself

During that same forum in New York, NADA president and CEO Peter Welch was asked about dealers being able to service high-tech vehicles amid staffing constraints.

“That’s a challenge for all of us in the future. Dealers have been able to do it, but the fact of the matter is, the advent of the grease monkey mechanic went out the window probably 15 years ago,” Welch said. “These are highly trained, highly compensated technicians.”

To service cars in today’s market requires science, math and tech skills, Welch said. Systems are getting more complicated, and so, too, he said will cost of labor — a challenge in and of itself.

Point is, the service technician is becoming a more sophisticated, tech-related role.

“In the technician arena, what we see more and more is the electronics in the vehicle over the last 20 years have just increased exponentially,” said Xtime's Roche. “Vehicles are rolling computers now versus really what they used to be.”

As for the service advisors, this job previously necessitated an in-depth technical understanding of cars, Roche said.  These days, it’s more customer-service-oriented.

“The vehicles diagnose themselves — the technician enables that with all the high-tech equipment that’s back in the shop,” Roche said. “The service advisor’s job is to process the customer in just a fantastic experience.”

That experience, he said, should include making it “interpersonal,” providing fair and transparent prices, prompt/as-promised timing on vehicle turnaround and amenities like a coffee bar.

But just as important is the communication aspect of it.

Chris Sutton, vice president of the U.S. automotive retail practice at J.D. Power, said in a news release: “Proactive communication with the customer, especially while the car is being serviced, is one element that has a direct influence on loyalty.”

In fact, 55 percent of consumers that the dealer phones plan to “definitely return” for paid service, while 67 percent of those who are texted say they will do the same, J.D. Power said.

What’s more, there has been a cross-generational increase since 2015 (ranging from 3 percent to 6 percent) in those preferring to be reached by text.

“It’s not surprising to see the preference for receiving updates through text messages continue to rise, but only 3 percent of customers indicate they receive text message updates,” Sutton said. “Correcting that disconnect by adding more text message capability should be a priority with a service operation.”