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How to Achieve & Maintain 100% Service AbsorptionHow top-performing dealerships mobilize the entire

dealership management team to achieve 100% Service Absorption - A Case Study Approach

With Steve Nickelsen, CEO of Nickelsen Partners, LLC

Moderated byMike Bowers, Executive Editor of DealersEdge

Thursday, September 13, 20121 – 2:30 pm ET

Steve Nickelsen, CEO of Nickelsen Partners LLC, has focused on improving dealership net profit for the past 25 years. In his personal consulting to dealers and as leader of other consultants, he has worked with more than 8,000 dealers, general managers, and sales managers to improve their businesses, and he has trained more than 20,000 automotive salespeople. His clients include some of the most profitable automotive organizations in North America, as well as some with among the highest customer satisfaction and retention.

He is a frequent speaker for companies and conventions related to the automotive industry, and he has been the highest-rated speaker at NADA. In addition to working directly with car dealers, he has worked with OEMs and importers to help them improve the sales, profitability, effectiveness, and satisfaction of their dealer bodies.

Examples of his work include: For a group of domestic-brand dealerships, helping them rise from average to outstanding sales performance (including making their largest store the #12 Chevrolet store in the U.S. in sales) by coaching the dealer and his management team.

For a dealer with both import and domestic stores, enabling the dealer to achieve greater profitability --and happiness -- by helping him define and implement consistent, effective processes for major dealership activities, particularly the vehicle selling process, thereby creating an earned confidence that the operations were stable and under control.

For a Canadian importer, helping them achieve month-over-month sales growth in an otherwise declining market, by creating and conducting a series of targeted performance workshops.

For a distributor of Toyota vehicles, helping them grow their market share by more than 15% over two years, through work with the distributor and directly with their dealers.

Steve Nickelsen, Nickelsen Partners

How to Achieve and Maintain 100% Service

Absorption

A DealersEdge® webinar withSteve Nickelsen

CEO of Nickelsen Solutions, LLC

A Strategic Plan Drawn from Case Studies of Peer Dealerships focused

on 100% Service Absorption

Your Presenter Today: Steve NickelsenCEO of Nickelsen Solutions, LLC

• Nickelsen Solutions, LLC is in the business of increasing dealership profits. We do that through:– Identifying, creating, and sharing best-practice

ideas– Working closely with our clients to implement

those ideas through consistent processes, people development, appropriate technology, and supportive incentives

– Providing focused tools to support execution and enable the management of those processes

• In that course of that work, we have worked with more than 8,000 dealers, general managers, and sales managers and have trained more than 20,000 salespeople.

• Learn more at www.nickelsensolutions.com.Page 4

Today’s Agenda• Measuring service absorption• What are the right metrics?• What the best have in common• Overall case study: Preferred

Automotive Collection• Mini case studies• Putting it all together: the

“plan”• Execution and maintaining

momentum

Page 5

Measuring Service Absorption• Service absorption compares how

much profit you generate in Service, Parts, and Body Shop with how much it costs to keep the dealership open.– High absorption (90%+): Fixed Operations covers the

costs for the business, and all profits from Sales go straight to the bottom line.

– Low absorption: You’re very vulnerable to any downturn in sales, and too much of your profits from Sales are needed to cover the dealership’s overhead costs.

• There is not only one correct formula.– Different OEMs and experts break out costs

differently and use different formulas.– Instead of getting hung up on differences in

calculating service absorption, focus on improving it.Page 6

What the Best Have in Common

• A “mindset”– Everybody knows the objective – 100%

• A marketing plan for service– We do it for sales, but less for service

• A focus on retaining customers– Know why they defect

• Expenses kept at the right levels – Be SURE you’re measuring the right things– The most profitable dealers have changed the metrics, i.e.

from hours per R.O. to just total R.O.s and total GP• “Velocity” strategy with used cars to increase

internal parts and service gross profit• A focus on creating good processes and

executing them consistentlyPage 7

Case Study – Preferred Automotive Collection

• Joe Betten, Dealer – Goal is to spend 180 days a

year “on vacation”– Lives in Grand Haven

Michigan but enjoys Marco Island and Scottsdale

– Avid horseman– Daughter Amy is the

Executive Manager

Page 8

Case Study – Preferred Auto CollectionLocations (Western Michigan)

Page 9

Case Study – Preferred Automotive Collection

Actual Service Absorption Results

Page 10

One Year Ago Today ChangeToyota of Grand Rapids (no body shop) 87% 98% +11%Preferred Chrysler-Jeep-Dodge 75% 86% +11%Preferred Ford (no body shop) 67% 85% +18%Preferred Buick-GMC 81% 98% +17%

Case Study – Preferred Automotive CollectionThe Mindset: Everyone Knows the Goal

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One Year Ago Today Next YearToyota of Grand Rapids (no body shop) 87% 98% 110%Preferred Chrysler-Jeep-Dodge 75% 86% 95%Preferred Ford (no body shop) 67% 85% 98%Preferred Buick-GMC 81% 98% 108%

Case Study – Preferred Automotive CollectionThe Plan

• Created a plan on how to achieve the 100% service absorption objective– Get more fixed gross– Reduce costs throughout the dealership

• Met with managers and told them the objective– “We are going to reduce our dependency on

vehicle sales.”– Everyone knows – not just fixed operations

• Dissected the components– What can we control?– Where are we hurting ourselves? Are we hurting

retention by being too aggressive on price? (This could be as true in F&I as in Service.)

Page 12

Case Study – Preferred Automotive CollectionStaffing

• Make sure you have enough staff to accomplish the goal.– What is the right number of techs? How

many writers?– You can’t grow without the people to

handle the increase.– Preferred’s Toyota of Grand Rapids store

just added 2 Service Advisors and 5 Technicians to handle the needed sales for 100%+.

Page 13

Case Study – Preferred Automotive CollectionAlign Incentives with Promotions

• Create incentives for every promotion.– $8-9k in domestic; $10k in import

• Target the incentives at Service Advisors or Technicians, whichever is more appropriate for that specific promotion.– Reward the technicians for quality

inspections.– At Preferred, good inspection with

an upsell earns the chance to win a $300 debit card.

Page 14

Case Study – Preferred Automotive CollectionToyota of Grand Rapids

• The newest thing they started is the quick service at Toyota for those buying new cars and are under the TAC program.– Gold members during the 2 years of

coverage– Promoted to platinum level after the

coverage expires– Goal is to retain at least 90% of TAC

customers after expires• Go after the 5,800 former

customers that drive Toyotas that don’t service with us (25 year history)

Page 15

Case Study – Preferred Automotive Collection: Marketing

• Do at least quarterly service, parts, and body shop promotions– Extending the 3rd quarter tires and battery

promotion into the 4th quarter– Have used direct mail for building business for 3

years– Whole staff has to be “ginned up” and energized– Today “Larry” gets free oil changes – keep it fun

• The most effective promotions target our own customers.– However, Preferred has also had some success

reaching for customers of competitors.

Page 16

Case Study – Preferred Automotive CollectionMarketing

• Decide who you are going to be– $9.95 oil changes, tires at

cost, batteries for $59.00 installed, pit passes etc.

• Discounted oil changes– We LOVE this – despite the

minor irritations or the 30% that never buy anything else.

– We average over $50 per R.O.– Offer items less than $20;

RainX, wipers, etc.

Page 17

Case Study – Preferred Automotive Collection Marketing

• The “Pit Pass”– Another reason to do business with us– Washer fluid and air for their tires “whenever they want it”– “We spend $200 to $300 in advertising to attract a customer, but won’t

spend a dollar for a donut to keep them coming back.”– “We have people in our service waiting areas that don’t have a car in

service.”

Page 18

Showroom

Buy Or Lease Service

Vehicles

1st Service

3rd Service

6th Service

4th Service

5th Service

Last Service before repurchase

2nd Service

YesNo

Your Competitor

Your Competitor

Case Study – Preferred Automotive CollectionRetention and “The Circle of Life”

Page 19

Case Study – Preferred Automotive CollectionFocus on Customer Retention

• Measure the retention of your current customers –both new and used.

• When someone defects:– Find out the reason why– Try to get them back into the

family

Page 20

Case Study – Preferred Automotive CollectionFocus on Customer Retention

Page 21

What Preferred Heard from Defecting Service Customers

What Preferred Did with What They Heard

“I’m pretty honked off that you raised my oil change to $14.95. It should have been $9.95.”“It just takes too long.”“You charge too much for everything.”

Preferred had raised its price for oil changes from $9.95 to $14.95. They dropped the price back to $9.95.Preferred changed its processes so that a team of 3-4 technicians gets vehicles done more quickly.For Toyota customers with complimentary 2-year maintenance, Preferred added one free oil change after that program expires.

Case Study – Preferred Automotive Collection Retention and “The Circle of Life”: Results

0%20%40%60%80%

100%

GM Off-Site Lot(Used)

GM (Main Lot) Ford Toyota AutoCare

60%75% 75%

Customer Retention for Service – New and Used

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High 90s

Case Study – Preferred Automotive CollectionOne-on-Ones with Service Advisors: The Problem

• Not sure that they were offering all needed and scheduled maintenance to every customer– Also not sure they were presenting them in

a way that made the most sense or was the most persuasive

• Too many single-line repair orders• Too much “declined service”• Not discussing the “next

appointment” with every customer• Not tracking customer pay statistics

for each advisor well enough

Page 23

Case Study – Preferred Automotive CollectionOne-on-Ones with Service Advisors: The Solution

• Every morning, the Service Director sits with each Advisor to review every repair order from the previous day.– Very similar to the “Save-A-Deal” meeting in

Sales – General Manager attends 2-3 times/week– 10-15 minutes starting at 10 a.m.– Use “Repair Order Analysis” from ADP

• Was all needed or scheduled maintenance was performed or offered?

• Review “Declined Services”– Track with a “labor op” entered when service is

declined– Measure each Service Advisor against a goal

and the shop average• Added a line to the R.O. that tells

customers when their next appointment is scheduled Page 24

Case Study – Preferred Automotive CollectionOne-on-Ones with Service Advisors: Results

• Much better documentation• Eliminated “excuses” for not

performing at the highest levels

• Reduced single-line repair orders by 9% in the first month– Generated $8,000 additional gross

profit in the first month• Working on another 10-12%

reduction in single-line repair orders or denied work– Worth an additional $8,000-

$12,000 gross profitPage 25

Case Study – Preferred Automotive CollectionOne-on-Ones with Service Advisors: A Tool

• This is an example of a spreadsheet that can be used for these one-on-one R.O. reviews.– Each row is

an R.O.– It is just a

checklist for verifying what is being done.

Page 26

Case Study – Preferred Automotive CollectionProcess Measurement and Management

• Measure the results and make adjustment if you are not on track.– Preferred uses ACAR to generate

detailed reports with benchmarks• Monthly ACAR meetings in person

at each store• Discussions about the current state

and improvement opportunities• www.acarreport.com

– Daily reports – KPIs (Key Performance Indicators)

Page 27


• Preferred also uses the N-DOTS (Nickelsen Dealership Operations Toolkit) to track performance by Service Advisor.– This shows real data from a

portion of one report – not all lines, total for all Service Advisors.

– Note that Preferred generates high Service Absorption through lots of R.O.s, NOT through high hours per R.O.

Page 28


• This expanded view shows the detail for three of Service Advisors as well as the total.

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A B C

MINI CASE STUDIES

Page 30

Mini Case Study #1 – Jon Lancaster ToyotaTire Sales and Quick Lube

• Focus on tire sales– Selling over

80/day– Website is set up

for ease of purchase

• Built a “quick lube” across the street– Does 100 CP quick

lubes/day

Page 31

Mini Case Study #2 – Romain Automotive GroupAdding Evening Service

• Added evening service (until 11:00) and Saturday service (8:00 – 4:00)

Page 32

Mini Case Study #2 – Romain Automotive GroupTire Displays and Good-Better-Best Offerings

Page 33

Mini Case Study #2 – Romain Automotive GroupSigns to Attract Service Customers

Page 34

Mini Case Study #3 – Mike Patton Auto FamilyIncreasing Customer Count

• Lowered quick lubes to $16.88– Gross profits went from $170k to $290k

• Recently invested in waiting areas in all dealerships

• If they take extra snacks or sodas –they offer to help them

• Chris Patton does a blog “Christianity at Work”

Page 35

Mini Case Study #4 – Tom Gill ChevroletBuilding a Café

• Café supports both service and sales customers

• Some dealers outsource café management to achieve break-even

Page 36

Mini Case Study #4 – Sisley HondaBuilding a Café

• Café supports both service and sales customers• Some dealers

outsource café management to

achieve break-even

Page 37

Mini Case Study #5 – Greenwood ChevroletOutsourcing Service Retention

• Greenwood Chevrolet uses Performance Administration to provide prepaid maintenance services to its new-vehicle buyers.– Creates customer habit of

coming to dealership for service

– Triple number of ROs/customer in first year of ownership

– www.performanceadmin.com

Page 38

Mini Case Study #6 – Tom Kelley Auto GroupService Walk-Around with the Customer

• In 2009, Kelley started having its Service Advisors do a comprehensive walk-around with the customer.

• Within one week, hours per R.O. increased by 0.45!

Page 39

Mini Case Study #7Rerouting Incoming Calls to Service Advisors:

Process

• All incoming calls go to the receptionist, who routes the calls.– Sales calls go to Sales– Office calls go to Office– But Service calls get asked another question!

• For Service calls:– Appointment calls go to appointment setter during

peak periods– Status calls or other information requests go to the

Service Advisor

Page 40


Process

• The receptionist logs every call.– At first, the GM, Service Manager, and Service

Advisors reviewed the log weekly.– Each Service Advisor learns how many calls were

taken for him.– If there are too many incoming “status” calls, the

Service Advisor is coached to keep customers better informed.

– Appointment calls were analyzed to do a better job of planning dispatching.

– Now that the process is stable, the call log reviews are done every six months.

Page 41


Results• Incoming calls to Service Advisors dropped by

more than half.– 63% of incoming calls were for appointments, which were

rerouted.– Most of the remaining calls were status calls that are no

longer happening because the Service Advisors are calling the customers proactively.

• Several customer have remarked on how much better it is talking to a Service Advisor without constantly being interrupted by incoming calls.

• Productivity– Before: 3 Service Advisors each taking 30-35 calls/day.

Average time with each service-drive customer was 8 minutes.

– After: Service Advisors each take 12-15 calls/day. Average time with each service-drive customer is 13 minutes.

Page 42

Putting It All Together – The “Plan”

Page 43

Do a great write-up

Do a great service delivery

Do a good job in the shop

Provide a great

experience for waiting customers

Communicate during the

day Monitor and manage

Follow up as neededGet the first

service visit

Attract conquest

customers

Create great service menus

Bring back repeat

customers

Putting It All Together – The “Plan”Before Drop-Off During Delivery

After

Page 44

Do a great write-up


Provide a great





service visit

Attract conquest

customers


Bring back repeat

customers



Page 45

■ What services can you offer your customers?■ How can you “package” those to emphasize value?■ How well do they line up with what customers are going to

see recommended in their service manuals and on-line?■ Are they priced competitively? Is that obvious to the

customer?Get the first service visit

Attract conquest

customers


Bring back repeat

customers

Putting It All Together – The “Plan”Service Menu from H&H Chevrolet

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Get the first service visit

Attract conquest

customers


Bring back repeat

customers

Putting It All Together – The “Plan”An On-Line Service Menu from Lakeland

Page 47


Attract conquest

customers


Bring back repeat

customers

Putting It All Together – The “Plan”Another Service Menu

Page 48


Attract conquest

customers


Bring back repeat

customers

Putting It All Together – The “Plan”A Service Menu That Explains “What” …

Page 49


Attract conquest

customers


Bring back repeat

customers

Putting It All Together – The “Plan”A Service Menu That Explains “What” … and

“Why”

Page 50


Attract conquest

customers


Bring back repeat

customers


Page 51


Attract conquest

customers


Bring back repeat

customers

■ Do a service tour during the sales process■ Schedule the first service appointment during vehicle

delivery■ Remind them of the first appointment ahead of time: call,

text, e-mail, or mail■ Monitor and manage first-visit retention – overall, by

salesperson, and by whoever does delivery■ Offer free oil changes to recent vehicle buyers?■ Offer a prepaid maintenance program?


Page 52


Attract conquest

customers


Bring back repeat

customers

■ Schedule the next maintenance appointment during service delivery

■ Follow up on missed appointments – identify dissatisfaction issues so you can work on them

■ Use marketing programs (e.g., direct mail) that have worked well for you or other dealers

■ Offer simple incentives to return – unlimited free washer fluid refills, unlimited free nitrogen tire refills, etc.


Page 53


Attract conquest

customers


Bring back repeat

customers■ Use marketing programs (e.g., direct mail) that have worked

well for you or other dealers■ Talk with customers about servicing their other-make vehicles■ Monitor your on-line reputation

Putting It All Together – The “Plan”On-Line Reputations Affect Conquests

Page 54


Attract conquest

customers


Bring back repeat

customers

■ This review is for Preferred Automotive Collection’s Toyota of Grand Rapids store, on dealerrater.com.

■ Reviews like this may attract conquest customers.

■ Poor reviews definitely drive prospective customers away.

Putting It All Together – The “Plan”Improving On-Line Reputations

• “Are you happy with your experience here today?”• [If yes] “Here is a list of several websites that customers

sometimes look at to decide whether they want to visit a dealership. Would you mind writing a little review about your experience here on one or two of them?”

Page 55


Attract conquest

customers


Bring back repeat

customers


Page 56

Do a great write-up

■ Schedule appointments to allow enough time to do this well

■ Service ADVISORS, not just Service Writers■ Do full walk-around with the customer to build

value and earn trust■ Review any declined work from prior visits■ Recommend needed work, and provide alerts

about work that will be needed in the foreseeable future

■ If the vehicle does not need anything beyond a basic service, tell the customer that and commend them for having a vehicle in great shape


Page 57

■ Have a pleasant, comfortable waiting area where people can relax or work – must have decent WIFI

■ Complimentary beverages and snacks■ Ideally have both TV and a quiet working

area■ Consider adding a café


Provide a great



day

Putting It All Together – The “Plan”Service Customer Waiting Areas at Ken Ganley

Nissan

Page 58


Provide a great



day


Page 59


Provide a great



day

■ Call/text/e-mail the customer when the vehicle is ready and thoroughly review what was done (particularly if a cashier will be doing service delivery)

■ Call on additional work as soon as the need is identified

■ Don’t make the customer call you■ Never set up the customer to be surprised

when they come to pick up the car■ Try to have the Service Advisor cashier the

R.O., not someone who does not understand the R.O.

■ How does the customer prefer to be communicated with?


Page 60

■ Complete inspection on every vehicle■ Clearly document complaint/

cause/correction for each R.O. line item so customer can understand it at service delivery


Provide a great



day


Page 61

■ Review the R.O. in detail, so customer understands that all his concerns were dealt with effectively, what he paid for, and what he received at no charge

■ Review the inspection sheet, so customer has peace of mind

■ Discuss any future work needed■ Schedule the next appointment



Page 62

Monitor and manage

Follow up as needed

■ Track customer satisfaction through surveys and manager calls to customers – goal is understanding how to provide consistently great service, not just getting good CSI numbers

■ Call all missed appointments to identify causes and reschedule■ Call to set appointments for declined work or anticipated service

needs at the appropriate time


Page 63

Monitor and manage

Follow up as needed

■ Track R.O.s, total gross profit, and sales penetration by product for each Service Advisor

■ Review R.O.s— Completed inspection sheets attached?— Evidence of appropriate upselling attempts (not too little,

but also not too much)?— Clear work descriptions so customers can understand

value provided and have peace of mind?■ Service Managers do one-on-ones with Service Advisors to

coach on increasing total gross profit and retention■ Manage by walking around – Are effective walk-arounds

happening? Are service deliveries done well? Do customers look happy, or do they look resigned?

Putting It All Together – The “Plan”Notice How Much of This Is About Process

Page 64

Do a great write-up


Provide a great





service visit

Attract conquest

customers


Bring back repeat

customers


Execution and Maintaining MomentumThe Biggest Problem

• Success depends on getting the processes right – right process, done consistently.– Seven out of the ten elements in

the “plan” are processes.– Most dealerships struggle to

execute the same process the same way consistently.

Page 65

Execution and Maintaining MomentumTwo Things That Matter

Page 66

What you plan to do

How consistently

you do itYour resultsx =

■ Your intentions■ Your plan

■ How many of your people actually follow the plan

■ How often your people follow the plan

■ What % of your customers experience the plan

■ Great if the plan and the execution are good

■ Poor if either the plan or the consistency is inadequate

■ Initially good but then declining unless management stays on top of execution

Execution and Maintaining MomentumWho Is Accountable for Execution?

• How are you going to measure execution and hold that person accountable?

• How are they going to measure execution and hold others accountable?

Page 67

Execution and Maintaining MomentumMonitoring Key Performance Indicators (KPIs)

Page 68

Execution and Maintaining MomentumAre You Setting Yourself Up to Succeed or to Fail?• Do your people believe you are committed, or can they safely treat

this like another “flavor of the month”?• Do your people have the skills, time, and resources they need?

– If not, what are you going to do about that?• Are you going to focus on the right metrics? (Retention and R.O.

count, not $/R.O.)• Are you putting in place processes that make these good things

happen, or are you using processes that prevent them from occurring?

• Are you reviewing progress towards your Service Absorption goal at every manager meeting?– Are you holding your people accountable for following up on those conversations?

Page 69

Execution and Maintaining MomentumIs the Problem Your People?

• If you believe the problem is one person but that your other managers are fine …– You may be right.

• If you believe that all your managers are a problem …– Odds are that their replacements will be a

problem, too.– The fix for that is better processes plus

coaching for those managers.– Their manager(s) may need coaching, too.

Page 70

Execution and Maintaining MomentumMake Time to Measure What’s Important

• Regular review of KPIs – it’s the dealer’s or GM’s responsibility to determine what is on the “dashboard”.

• Knowing that the oil pressure is low is of no value if that data is not acted on.

• Air traffic control keeps airplanes on their flight plan. If they are off, it’s “turn left to 050.”

Page 71

Execution and Maintaining MomentumUrgent vs. Important

Page 72

Some of us need to rethink our time allocation if we’re going to get the important things done.

Execution and Maintaining MomentumWhat We See at Dealerships

• It is possible to generate these improvements without outside help.– But it is really hard, and success is rare.

• Dealers typically get the most benefit from relying on their own managers and supporting them with outside resources.– Advertising and website maintenance for service promotions– Targeted programs like prepaid maintenance– Data benchmarks and trend analysis– Assessing “the truth” about how well you are executing today– Best practices and ideas that have worked at other dealerships (and

knowledge about what has been tried less successfully)– Coaching and skill-building for dealers, managers, and staff

Page 73

Summary: Which of These Plan Elements Will Be Different in Your Store within a Month or Two?

Page 74

Do a great write-up


Provide a great





service visit

Attract conquest

customers


Bring back repeat

customers


Steve Nickelsen, CEO

Thanks for listening, and congratulations on your

desire to learn!

For any additional questions, please email me at: [email protected],

or my cell is 330.697.3725

Page 75

www.nickelsensolutions.com

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