What The Future Holds

Scott-GreggThe future holds many changes for car dealerships and they are either going to have to evolve or be left behind.  Vehicle ownership will most likely decline due in part to programs like Uber, Lyft, and Rideshare,  for example.  Growth in electric vehicles equates to a decrease in maintenance and with the future of connectivity in vehicles, software updates will be done remotely instead of having to come into a dealership, which could lead to reduced RO counts and sales of labor and parts.  All of this means that customer retention will become extremely important.

Millennials are now the largest generation and studies show they are more concerned about convenience and price rather than loyalty to any one dealer.  Only the most adaptable operators will be able to turn a profit.  A new business model will be required to sustain profitability.  Something else the future brings is a shortage of technicians that can work on today’s advanced vehicles, which will have a huge impact on customer retention.  Experts have predicted a need for anywhere from 15,000 to 25,000 new technicians in US automotive dealerships over the next 5 years.  Training institutions cannot keep up.  Studies show that millennials are harder to attract to jobs as automotive technicians due to the fact that they are more interested in quality time and not a 55- to 60-hour work week like a lot of dealerships require.  20 to 25% of technicians leave their jobs each year; some to other dealerships, some to independents, and some to non-automotive jobs.  Every departure is an expensive loss to the dealer.  There should be more emphasis put into relationships with technicians and costing out what employee retention is worth.

Dealerships cannot continue to operate with an old and possibly outdated business model when everything around them is changing.  One of the barriers to finding enough technicians can be traced to antiquated management styles and out-of-date compensation packages.  Technicians bring to the dealership their own tools and certifications, but once there they find their pay very unpredictable due to poor workflow scheduling.  Many times lead technicians find themselves to be “victims of their own knowledge” making less money year over year.  This ends up discouraging junior technicians and makes them more likely to jump to other industries where salaries are more predictable and benefits are better.  Quick oil change centers could be a great place to bring up new technicians but end up being a dead end with high turnover due to a lack of formal training and promotion programs.  This is going to require a new focus by management and new thinking about promotion and training programs, as well as salary and benefits.  Currently quick oil change centers are an excellent opportunity for customer retention but are severely underutilized due to technician turnover and poor quality of work.  Proper training and promotion programs would alleviate this.

Alternative compensation packages need to be visited to attract the new generation of technicians.  Many dealerships in California and elsewhere have begun to pay an hourly wage plus a flat-rate component for more stability in pay and to make sure that minimum wage requirements are met.   One issue with flat-rate pay is that a technician is paid a certain dollar amount per labor hour produced, regardless of what that labor hour brought in revenue from the customer.  This can be a huge issue if discounting is not controlled.  An alternative may be to pay a percentage in a tier structure such as salespeople or F&I managers are paid.  For example, the technician would receive 26% of their labor at 7-8 hours produced daily, 28% at 8-10 hours produced daily, and 30% at 10+ hours produced daily.  This makes it much easier to keep your gross profit margin at 72-75%, plus the technicians will help control service advisors discounting because that directly affects their pay.

The future definitely brings change and automotive dealerships are going to have to change and evolve or profitability will suffer.  A new business model will be required.  Customer retention, as well as finding, training, and promoting technicians, along with visiting new and different pay plans and benefit packages are going to have to be a primary focus.  Quick oil change centers need to be maximized, not only as a customer retention opportunity but as a farm for up and coming technicians.

Written By Scott Gregg

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