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FCA US Dealers: Service Revenue Just Got A Lot More Important

FCA US CEO, Sergio Marchionne, recently announced plans to reduce the profit on new cars sold within the FCA brands by increasing the invoice prices, while keeping the MSRP the same. This will result in less potential profit for its dealers. The move, as reported by Automotive News, is FCA's attempt to increase its profitability. This, of course, will probably not result in standing ovations from dealers. In today’s ultra-competitive world of transparency and Internet shopping, dealers are already fighting the race to the bottom and depend on aftermarket, F&I products and finance reserves, just to seek out a profitable sale.

 

Sales managers can try tactics such as holding more gross, and not discounting the vehicles as much. But the reality is that consumers have too many resources available to get persuaded into paying more, or taking less on their trade. Transparency in the sales process is only going to become more available – in fact it's going to become the norm. Some dealer groups are already trying to take the entire process online. How hard will it be to undervalue a trade or mark up an interest rate if the consumer can simply open another web browser and look the information up online?

 

Perhaps some are counting on the walk-in traffic that may not have conducted any research prior to visiting. Sorry to tell you this, but showrooming is becoming more prevalent. Your customers are shopping the competition on their mobile devices – right from your lot. There are even services that allow your competitors to target your customers with ads and offers while they're standing on your lot. Pricing transparency isn't going anywhere. Technology advancements will guarantee that.

 

Since margins and profits in sales are declining; due to consumer use of pricing resources and OEMs reducing margins; dealers will have to discover more profit in other areas of their store. One of the easiest departments to do this with is, of course, the one already relied on for revenue - service.

 

It would be a wise move to truly analyze whether you are maximizing profit potential in your service department. There are some really good tools and technology that create more efficient processes, keep your service bays full and avoid idle time for technicians. It's not necessary to spend millions on service bay expansions or new buildings to increase service revenue. Just consider some changes and perhaps stop doing things "the way we've always done it." Approach your operations with a fresh set of eyes. I guarantee that there are opportunities waiting to be discovered...

 

You just have to know where to look.  

Views: 360

Tags: FCA, absorption, automotive, dealerships, fixed, margins, news, ops, profit, service

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Comment by Brian Bennington on April 28, 2015 at 10:32am

A good point, albiet a rather conventional remedy to maintaining higher margins Mr Ruggles.  I think you have to get down to the base reasoning behind these moves, though.  That's just self-preservation of an executive's job and an easy way to increase manufacturer profits thus making him look good to the shareholders with minimum effort by moving the load off of their shoulders and onto the retailers'.  That's why they have such a keen interest in what kind of money their retailers are making, so they can judge how much more "cost" they can stand.

As to the low interest and incentives, sales needs them to make their quotas, which like retail, are pretty much month-to-month goals.  They've got to "move the metal" and, when things get tight, they need all the help they can get.  And, what's easier and simpler to understand than giving dealers some controlled cash to play with.  Believe me, manufacturer sales and marketing will fight like a "bitin' sow" to keep incentives.

Why FCA didn't raise the lists shows a lack of understanding and faith in good retail practices.  Personally, I think they should dramatically increase margins, even higher than their competition, and then make an effort to educate retailers how to sell as opposed to just product educate.  After all, it's been proven since the beginning of time that a well-balance combination of good selling techniques, spiced up with relevant product knowledge, can reduce the need to "deal."  But, most important are the sales techniques, as witness by the new rep with minimal product knowledge who jumps to the "top of the board."            

Comment by David Ruggles on April 26, 2015 at 11:36pm

Rather than cutting markup one might wonder why they don't just curtail incentives and rebates.  I've been watching this for a few decades and rebates and incentives have been increasing as OEMs shorten markup.  Extended term financing also adds to this.  OEMs have to pay into the deal later on to get owners to trade after financing for ridiculously long terms.  I know.  Everyone is doing it.

The consumer today takes delivery for less than the dealer pays off at the floor plan lender.   This hasn't always been the case, but the trend began the moment Joe Garagiola uttered those famous words, "Buy a car, get a check."  And so did the trend toward ever increasing trunk money.  It is laughable for our industry to claim transparency when so much of our gross profit is hidden behind invoice.  Perhaps we can get consumers to accept OUR definition of transparency, rather than their own.

Comment by Brian Bennington on April 25, 2015 at 8:05pm

Why Richard, Could it be sheer coincidence that you just happen to work for a "hammer" named "Autopoint" that can beat down this "nail" of weakening dealer profit caused by moves like FCA decreasing vehicle margins, "enlightening" technology, and consumer savvy?  Maybe your next business card should proclaim your company "profit saviors."

Sorry to jazz you about this, as I'd bet "Autopoint" could help most dealerships run more efficient  service departments, but your post paints a mighty bleak picture of the future of vehicle sales and completely discounts the power of a well-run sales department.  Really, I wonder if Warren Buffett would have made his gigantic investment in dealerships if he'd have read this post first.

You do have a lot of dealers in your corner, as many have either lost faith in sales people to "perform", or they just don't understand the principles of effective selling.  However, I know enough about it that I'm not buying into the fear your packing here.  As vehicle sales go, your writing sounds like "The last chapter of what's the use."

I usually discount statistics as I'm a founding member of the "If you torture data enough, it will say anything" club, but I'll share one from a recent AN broadcast reviewing a MaritzCX study as to the most influential source of information for the car shopper..  Guess who #1 is?  It's the "salesperson at the dealership" (21.5%) followed by "family and friends/word of mouth" (18.8%).  Now, with odds like those, I'd advise dealers to sharpen up their hiring and training practices with more investment than they'd put into their service departments.  But, in the spirit of ADM, that's only my opinion.                  

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