Service departments must start bolstering their customer retention efforts now or risk significant revenue declines in two to three years when warranties on new cars purchased in 2022 expire and typical levels of customer defections ensue, warns a service and parts trainer.
Lee Harkins, CEO of M5 Management Services, said the steep decline in new-car sales in 2022 is driving this scenario. According to the Automotive News Research & Data Center, lingering supply chain and inventory woes caused light-vehicle sales to drop 8 percent last year compared with 2021, to 13.4 million — the lowest number since 2011.
Here’s Harkins’ premise: It’s not unusual for a typical dealership service department to experience customer defection levels of 60 to 70 percent after a conventional new-car warranty of three years and 36,000 miles expires.
With a significantly reduced pool of new-car customers, that 30 percent group of nondefecting customers will be proportionately smaller — and substantially so. Harkins called this a “jerk-back effect,” and said it would be particularly damaging because highly coveted, lucrative customer-pay work will decrease.
“Think of it as trying to fill a bucket of water with a hole in it,” Harkins said. “In two or three years, that hole in the bucket will be bigger, so there’ll be more water running out of the bucket than there is coming in.
“It’ll be like a freight train hitting fixed ops departments right between the eyes,” he added. “Service managers have to start closing their retention gaps … everyone has to really concentrate on getting those customers to keep coming back.”
How can service managers fill that customer bucket faster than it empties? By consistently emphasizing the value of the services that dealerships offer and focusing on forging bonds with customers instead of profits, Harkins said.
“You have to get your staff focused on earning customers’ return business,” he told Automotive News. “During the warranty period, start talking about what happens when their cars’ warranties expire. Sell them on the maintenance and express service now, before they defect, and sell them on the assets and capabilities of your department.”
By building relationships, service advisers can add value to transactions.
“Too many advisers feel their only goal in life is to get as much money out of a customer’s pockets as possible,” Harkins said. “But customers want to feel welcome and feel the value they receive far exceeds whatever they paid for repairs or maintenance.”
Service advisers also need to talk up the credentials of their technicians, especially if they’re certified or master technicians, he said.
“In most stores, customers hear all about buyers’ clubs and discounts, but they never hear about the technicians’ expertise,” Harkins said. “Your biggest asset is technicians that fix cars right the first time — tell customers about them.”
At Subaru of Winchester in Virginia, service director Mandy Housley said she agrees with Harkins’ market assessment. “It’s actually at the top of our priority list,” she said, referring to strengthening customer retention efforts.
Subaru of Winchester is one of 18 rooftops in Virginia and West Virginia owned by Carter Myers Automotive. “It’s not too early to start thinking about this,” Housley said.
Another priority is employee retention, which she said helps build and enhance customer relationships.
“I know customers love our service advisers because they’re always bringing them homemade food,” Housley said.
To keep Subaru of Winchester’s six service advisers engaged, two of them work four 10-hour days a week and two more put in conventional eight-hour shifts five days a week. Two express-lane advisers work four 10-hour days a week.
“This creates a good work environment because they’re getting more time with their family and they see we’re invested in them — that it’s not just a one-way street,” Housley said.
Another priority for advisers is constantly reinforcing the services the dealership offers, such as loaner vehicles or picking cars up at a customer’s home for service.
“They need to be reminded that we’re a dealership that goes above and beyond — that we’re the ones who care and this is where they want to be,” Housley said. “We also have to keep talking to customers and ask what’s most important to them.”
Ralph Dykes, service director for Honda, Hyundai and Volkswagen stores in Capitol Heights, Md., part of the 21-store Pohanka Automotive Group, said he is very concerned about the scenario Harkins predicts.
“This is just the start of a tidal wave because those new cars we’re not selling won’t be coming in for warranty or nonwarranty work,” Dykes said. “Two of the big pieces of our revenue pie, warranty work and internal work on used cars, are almost gone, so we have to do our very best with that one piece of pie that’s left — customer-pay work.
“We need to rethink how we provide service — make sure we go above and beyond customers’ expectations,” he added.
Dykes said that one way to do this is a financing program for car repairs the three stores started in January. Discussions with numerous customers had revealed that many were declining repairs not because they didn’t want to do business at the stores, but because they simply couldn’t afford the work, he said.
“A LendingTree survey showed that 28 percent of Americans can’t pay for a $500 car repair without going into debt,” Dykes said. “So we partnered with a financing company called Sunbit.”
Customers can split car-repair bills into three interest-free payments over 90 days, or select longer payment terms. Now, they can afford to pay for repairs with less financial hardship, Dykes said.
In the first 16 days of the program’s implementation, the Hyundai store saw 46 loan applications resulting in 33 repairs that added $28,939 in revenue, for an average ticket of about $877. The average term of the loans was eight months, Dykes said.
“At that pace, you’re getting into a range of more than half a million dollars a year in additional revenue we otherwise might’ve missed,” he said.
The Maryland stores also are emphasizing more training for their eight service advisers, with a focus on a 10-step service-drive walkaround, Dykes said.
“We found that our service advisers were doing the basics, but not always doing all 10 steps,” he said.
To help get customers back on the road faster, service advisers also now can offer them an express-payment option — yet another convenience that could help deter defection, he said.
In addition, service managers have been instructed “to be a little more client friendly” with customers who decline service and repairs, Dykes added, much in the same way a sales manager intervenes when a sale gets hung up on price.
“Yes, discounting can be a slippery slope,” Dykes said. “But all we’re doing is having a conversation. The first ‘no’ isn’t always a firm ‘no’; it might just mean a customer needs a little more information, additional options or time to process things — get comfortable with the situation.”
The stores also installed credit-card processing machines at each adviser’s desk. This avoids lines at a cashier station, which can irritate customers; plus, a cashier can’t answer customers’ questions about car repairs.
“We’ve taken the cashiers out of the equation, which takes the customer back to where they started — with their service adviser,” Dykes said. “Customers seem to be a lot happier because the service advisers can answer their questions and get them out the door faster.”
Bobby Davis, service manager at First Texas Honda, one of 11 rooftops owned by Continental Automotive Group in Texas, also agrees with Harkins’ assessment.
“We’re already seeing a drastic drop in warranty repairs,” he said.
“They’re generally about 25 percent of our business, but now it’s down to about 10 percent. And I think it’s going to be that way for the foreseeable future.”
One way to stem the defection tide is to continually ensure the department’s prices are competitive with other dealerships and independent repair shops, Davis said.
“There’s a misconception that dealerships always are more expensive, but that’s a falsehood,” he said. “It can be true, but only for dealers who haven’t woken up and moved along with the times.
“You don’t have to be the cheapest, but you have to be competitive,” Davis added, noting service advisers will share price-shopping results with customers to show how the dealership’s rates stack up.
Advisers also emphasize the value of manufacturer-certified technicians and factory-certified parts. The department also is looking at third-party training for advisers to reemphasize the things they should be communicating to customers to boost retention, Davis said.
“A lot of this stuff is really basic, but it gets lost in the shuffle,” he said. “We look at warranty work as an opportunity to put ourselves in front of clients, overcome objections and prove ourselves so they want to continue to do business with us.”
Harkins said that many steps service departments must take to retain customers are simple, common sense strategies that are fairly easy to implement.
“It’s not brain surgery,” he said. “But the challenge is that people don’t like change. They run from change, not to it.
“They also don’t look enough at the long-term because the focus always is on monthly financial results,” he added. “But stores have to start thinking a few years down the road — start selling customers on the fact that their dealership is a good place to do business.”
If stores do that, when a customer’s warranty expires, they will look at the dealership as the logical place to take their vehicle for service.
“It all comes down to relationships with customers,” Housley said. “If you have that, everything else just falls into place.”