Service department let down!

I am going to talk about poor service I have both witnessed personally and heard about from family and friends to make recommendations that can help dealers be more competitive and successful. Many dealerships offer excellent service, so the recommendations below will not apply to everyone.

I have been a car owner for over 33 years and I have had a lot of experience dealing with auto dealership service departments. Years ago there were lots of options for car repairs, but the small auto repair shops located at local gas stations have been disappearing for the past decade and now dealerships are the most common choice for repair work. This is a fortunate circumstance for dealerships because the service department usually provides significant margins, but given the level of service I’ve seen lately, I wonder if some dealers aren’t taking this shift for granted.

Over the past 15 years or so I have switched from purchasing cars to leasing them, and consequently I moved my repairs from a local garage to the automobile dealership. I’m not your average Joe at a dealership waiting for repairs. I’ve been working with dealers for many years and I know what drives their bottom line, and I can tell you that service departments deserve more attention at some dealerships.

Recommendation 1 – Get customers in and out as efficiently as possible.

Service is a volume business meaning that a dealership needs to service a lot of customers to see good returns. Dealerships need to be prepared for high volume, and usually they are. I never just show up at a dealership for repair work. I call the day before, secure a time that works and make sure that I am not late for the appointment. And still, sometimes I have to wait a long time before anyone greets me and starts the service appointment. In a volume business, every customer counts. And, in the auto service business, which is a necessary evil to most people, making a customer wait is painful. They don’t want to be there and even though there is coffee and newspapers, they generally have something better to do. Your service department will take care of servicing cars, but you also need to make sure someone is servicing the customer. If your customer is going to wait for their car to be serviced, be sure to keep them informed if your promised delivery time changes. Have a dedicated employee greet and acknowledge incoming customers. Take their keys and let them go as soon as possible.

Recommendation 2 – Don’t make promises you can’t keep.

On countless occasions I have been promised that my car would be ready in an hour only to be let down when it wasn’t ready for 90 minutes. I understand that things can get hectic in the service bays, and there are unexpected situations and a million reasons for a service delay, but your customer doesn’t care. So, in all circumstances, recommend that they take advantage of your shuttle service or take a loaner and leave their car with you. It will take some stress off the service department because they will have more time with the car and it will avoid a situation where you are likely to upset the customer.

Recommendation 3 – Go the extra mile.

I can’t tell you how many times I have heard of people having to wait for their car because they were out of bounds for the service shuttle. This isn’t a pizza delivery service – these customers are paying you hundreds of dollars for a painful, mandatory service that offers them little personal value. Go the extra mile, literally, and do your customers a favour. They’re paying you for it and they’ll continue to pay you for it in loyalty and recommendations to their friends and family.

Recommendation 4 – Hire the right people and train and reward them.

Service staff can have attitude because they are rude or overworked and dealing with the customer takes them away from the long line of cars demanding their attention. You certainly don’t receive this type of service when you enter the sales area of the auto dealership. I know that the service department is a key profit center for the auto dealership, so why is there such disparity in the service provided in the service department? Your service department needs to service the customer as well as the car. Attention to customer service should be considered during the hiring process; is this person technically proficient and well-mannered? Would I want to introduce this person to my most valued customers? Once you’ve hired the right people, have you told them what you expect and trained them on how to deal with a long line? A frustrated customer? Have you rewarded them when you witnessed good behavior? You need to tell your employees what you want and reinforce it with monitoring and rewards.

Recommendation 5 – Walk the floor.

I believe the problem with service really rests at the top. Auto dealer owners are not spending enough time training, educating, rewarding and monitoring their service employees. When is the last time you walked the floor? Did you notice the bored customers flipping through the newspaper in the service department? Did you ask them about their experience? Did you watch your service department interact with your customers? Your attention to service will communicate volumes to your staff.

So, while dealerships are in the glory days of service with less competition from mom and pop shops, don’t be lulled into complacency. Chains of aftermarket service shops offer “Warranty Approved” services that threaten the dealership’s hold over the leased car maintenance market. In addition to threats from aftermarket shops, you can lose customers to the next dealership over when they start to shuttle to and from your area, promptly greet customers as they walk in and generally make service as painless as possible. The profits your dealership gains from service are far too precious to take a back seat.

-- Jeff Carbell

Capitalizing my business?

Outside of tax planning and operational issues, how to better capitalize is one of the most common discussions I have with my auto dealer clients. Clearly one of the better ways to capitalize your business is by way of retaining internal cash flow in the business, but often this is not possible and as a result the owner must entertain offers for external financing. I have found that obtaining new financing and re-financing existing credit facilities is much more challenging as a result of the recent economic downturn as banks are more risk averse, especially in the auto retail business.

It is still possible to obtain financing in today’s market, but a well-structured plan is in order. The plan should consist of a strategic message to the bank as to why the financing is required and how the funds will be used. If the financing is simply to fund current and prior year losses, it is more likely than not that the bank will decline. However, if the funds are used to purchase additional inventory, pay off previous management or acquire new equipment, the bank is more apt to provide financing.

Business owners are sometimes so surprised that the bank is willing to provide financing, and so focused on the interest rate and loan-to-value ratio of capital property, that they forget to read the fine print on their credit facility agreement. Often there are significant terms in the credit facility that are overlooked by the business owner until it is too late. Commonly overlooked terms address personal guarantees, postponements, financial covenants, audited financial statements, and significant security.

Personal guarantees come into play when a business can no longer continue to operate and the bank calls the loan. If you have an agreement with a personal guarantee and there is not enough cash to repay the bank loan, the bank can seize your personal assets (i.e. your house!) as repayment.

Postponements require that the company postpone repayment of debts in favour of repaying bank debt. This term can be detrimental if your business runs into trouble and you have personally put significant funds into the business.

Financial covenants also pose a risk in that sometimes they can be impossible to meet and 1-3 years after the facility agreement is signed, the covenants may be breached and the bank can call the loan.

The terms may indicate that you will be required to provide the bank with audited financial statements within a specific period following your company’s year end. Audits can be costly, and you may be able to negotiate to submit reviewed financial statement (lower assurance than audited statements) which can save your company some money in accounting fees.

Another problem I see is business owners who don’t explicitly ‘shop’ around to different banks and compare terms. It is important to create a chart to compare the terms offered by different banks because more often than not facility agreements, especially for auto dealers, have a significant number of terms that are not easy to compare in your head. I suggest you write out the differences and compare all the options to make a decision based on the facts. Some points of comparison may be qualitative in nature, such as the reputation of the bank or relationship with the banking representative.

This is just a taste of what I have dealt with over the last several years with regards to capitalizing your business and I plan to write further blogs on this topic.

-- David Hertzog