WICHITA, Kan. – April 13, 2009 – News flash! The economy is in recession, unemployment is at its highest level in 20 years, world automakers are teetering on the brink of bankruptcy and car dealerships are closing doors at record pace due to a 40 percent plummet in car sales!
Yeah, tell us something we don’t know, right? With the obvious economic reality in mind and understanding the relationship between front-end sales and back-shop volume, the real news flash should read, “Dealers Focusing on Fixed Ops to Regroup and Rebound”! In fact, in 2008, net profit for U.S. dealers dropped to 1 percent, its lowest in 20 years. An astonishing 81 percent of those profits came directly from fixed operations (2008 NADA data report).
In the face of these challenges, how are the automakers helping dealers retain service customers, keep customers happy with their vehicles, and ultimately create profitable service volume? The sad reality for our industry is that the brand of assistance from OEMs comes in the form of a steady dose of mandates against maintenance services deemed unnecessary. These mandates, in the form of bulletins and trade articles, speak more to the OEM marketing platform of promoting “lowest cost of ownership” than anything else. They also suggest that by providing these fluid maintenance services, dealers are doing an injustice to the consumer.
According to various researchers from NADA, Lang Marketing and The Motor Equipment Manufacturers Association, in 2008, dealers enjoyed only 16 percent of total light maintenance and repair, down from 18 percent in 2007. That means 84 percent of a dealer’s potential customers are going elsewhere to get their maintenance and it’s getting worse. Dealers are leaving billions of dollars of preventive maintenance on the table every year!
Let’s examine the specific OEM positions and then the data to provide a clear and balanced picture. We’d like to share with you, the dealer, as our customer and partner our perspective on what has become critical to survival in this economy and how to capitalize on the great opportunities we have within this partnership.
First, let’s address the basic elements that we believe summarize the OEM position. Examining these points on their own merit, we provide facts and data that will reveal another perspective, hopefully one more reflective of your viewpoint!
OEM Recommended Services and Vehicle Inspections
If a dealer relied on only the OEM recommended services, they’d face closing their doors. Over 900 dealers are projected to close in 2009, adding to the 760 that closed in 2008 according to NADA. One OEM’s recommendation of five “high value” services as alternatives, based on our calculations, would provide the dealer with only $70 of service revenue per car per year! These services were largely inspections, with a tire rotation and balance being the only item of significance from a revenue generating perspective. Note: fluid maintenance services, on average, provide shop efficiency of 200 percent or more compared to OEM recommended services, which are generally less than 50 percent efficient.
Lowest cost of ownership
Lowest cost of ownership should not be confused with lowest cost of maintenance. Remember the old adage, “an ounce of prevention is worth a pound of cure”? As an illustration, regular transmission fluid services for the life of a vehicle might cost a consumer $1,000 (five services at $200 each). With the average cost for a transmission replacement running over $3,000, we think the math is clear as well as the sense of satisfaction- happy customer, happy dealer!
“Flushing” has been spun as a “no-no” by the OEMs. Question for the reading public: “Are you aware that each of the OEMs have their own product lines, including equipment for flushing?” One OEM goes so far as to say, “Don’t flush fuel injectors. But if you do, use only genuine [OEM] fuel injector cleaner”!
Don’t change fluids based solely on color
OEMs say flushing fluid systems based on color change is misleading. We agree! That’s why BG promotes and teaches a three step process using odometer reading, time/mileage since last service and visual inspection of the fluid to recommend service. We provide free service advisor training by over 900 BG professionals each and every day! NADA estimates that maintenance penetration stands at less than 20 percent, meaning that over 80 percent of the prescribed maintenance in owner’s manuals is not performed. In most cases it is because the service sales process is nonexistent or inadequate at the dealer and training, reporting, goal setting and accountability in fixed operations is the only answer to turning that around. That is what we do with and for dealers every day. In fact, our very existence depends on it!
Some additives may cause damage
That’s right, they may! OEMs cannot validate all products for safe use and therefore are forced to take this position; we understand and appreciate that fact. However, we back our products/services with the Lifetime BG Protection Plan®, even for used vehicles. We perform extensive testing and have a track record with the highest quality products around. We back that confidence with the ultimate statement: lifetime protection. This statement is also a great customer retention tool for the dealer as it promotes regular, scheduled customer-pay repair orders that deliver real value to the consumer; especially in a time when consumers are keeping vehicles longer and need to keep them running trouble-free. For example, our data indicates the average mileage for a vehicle serviced in a dealership is 65,000 miles and the average age of a vehicle in the U.S. is 10.2 years. Are OEMs really interested in the service schedules of the average vehicle? How aligned are their service schedules with the interests of the dealers’ customers?
OEM Recommended vs. Dealer Recommended
Should service menus differentiate between “OEM Recommended” and “Dealer Recommended”? Absolutely. For years, BG has taught and promoted “Good-Better-Best” menus that reflect this reasoning. Sure there are likely abuses out there with “loaded” menus, but we don’t condone this and recognize the lengthening of service intervals based on improved vehicle and fluid quality. Having said that, just as the OEM can’t approve all fluids in the market, dealers can’t always determine what fluid was last used and must rely on basic and time-tested indicators (mileage, service history and visual inspections) to promote effective maintenance. Moreover, they must be allowed to offer consumers a choice on the quality of a service. Ultimately, the consumer chooses what is right for their reasoning and budget. Coker Automotive Consultants teaches that 10 percent of the public are price shoppers and 90 percent are value buyers. It’s up to us to ensure service advisors are properly trained to demonstrate the value and ask for the business. After all, the consumer also has a choice as to where they have their automotive maintenance performed!
Our position on recommended maintenance is reflective of our partnership with you, the dealer, and consistent with your goals:
We respect the OEM position as a whole. In fact, we agree with many elements of it, but we feel the right to question the motivation of some aspects of the position. Are all elements of the OEM position reflective of a true win-win partnership with you? Or is it based on supporting a marketing platform around lowest cost of ownership at the expense of customer loyalty and dealership profitability? At the end of the day, our business depends on you and your customers, the driving public, to whom service, reliability and performance are important. We are here to ensure your success, which in turn will drive ours. Thanks for your continued partnership and know that we are right with you in these challenging times. Forget survive, we’re here to help you thrive!