I. Introduction
Since the late 1970s and early 1980s, the aftermarket quick oil change business has been growing at an astounding rate.
Can a technician who earns a market competitive wage, has basic training completed from manufacturer and dealership, perform, and complete an inspection report, and turn a profit? Can we expect, or even ask, a warranty customer to wait for their recall while we perform an oil and filter change? Can we schedule or know how to schedule the 70 to 80 oil changes per day that it would take to begin to be successful regarding customer expectations and the financial statement?
After much research and with the help of former quick oil change owners, it is believed that this operation should be a part of our dealership environment—it can be successful in all areas required by the public and can be financially profitable.
II. Success Factors for Aftermarket Quick Oil Change Operations
To understand and conquer this creature, dealerships must understand how our competitors have been in a feeding frenzy. Dealerships can learn from examining the requirements of quick oil change franchises. The factors discussed below are considered when measuring the chances for a quick oil change operation to be successful.
A. Location
Most of the larger quick oil change franchises, such as Instant Oil Change, Jiffy Lube, Monkey Lube, Q-Lube, and Valvoline Quick Change, consider location a huge factor when considering a franchise award. Demographics are a large part of the final decision.
Does the location have access to multiple activities for a customer, such as a bank, hairstylist, grocery, or dry cleaners? Is there something convenient for the customer to do? Choosing a location in this type of environment is important when a customer is asked to wait, regardless of the time needed to operate. This is a consideration of utmost importance.
B. Convenience
Is the location convenient for the customer between home and work? Most quick oil change franchises look for what they call “rooftop” areas, or residential neighborhoods. In other words, are we convenient to our customers?
A dealer must ask this question before determining the success possibilities of a quick oil change operation. Most dealerships are as convenient as most aftermarket oil change businesses.
Convenience to our customers, says a former owner of a Jiffy Lube franchise, does not mean offering a customer a ride somewhere for several hours while we change their oil. Convenience is waiting for a reasonable amount of time for the required service to be completed so the customer can go about their business.
Most quick lube operations researched do not offer a guaranteed finish time. They do advertise time intervals, such as a 10-minute oil change, 20-minute transmission service, 30-minute tire rotation and balance, and 60-minute brake service. In the event a promise time is not kept, the customer is normally offered some form of compensation, such as credit toward another visit or a discount.
C. Speed
Most dealerships do not have an issue in getting an oil change into the shop but getting it out is another challenge. Dealerships seem to feel that they have the customer captured once they have written the repair order. In fact, they do have the customer captured until the time for the next service.
The “get it in, get in out” mentality must be taken very seriously when deciding to tackle a quick oil change operation. Dealerships have used loaner cars and shuttles as a band-aid for providing quick and courteous service instead of insisting on fast service.
The average quick oil change operation sees from 15 to 30 oil changes per bay, per day. In an 8-hour workday, this equates to 15 to 30 minutes per oil change per bay. Structured properly, any dealership can achieve this level of efficiency in a quick-change environment.
D. Waiting Environment
Waiting areas should be user-friendly and equipped with the following:
- A television with a clear picture (preferably cable).
- Coffee from a machine that is kept clean. Use a good brand of coffee (not Brand X coffee, says a former Jiffy Lube owner).
- Complimentary Internet access via WIFI.
These elements are normally present when you enter the waiting room of a successful quick oil change operation, which tends to be comfortable and very user-friendly. Walk into several dealerships and spend some time in the waiting room—one would be very shocked!
III. Success Factors for Dealership Quick Oil Change Operations
With the proper training, pay plans, equipment, and dealer commitment, we can win this war and make money as well. We must structure our business to be user-friendly in the customer lounge.
A. Technician Skill Level
Master certified technicians with ASEs and $80,000 in tools are not necessary to change oil and filters. We can train high school, college, and technical school students to perform certain duties, such as how to properly look at tires, air filters, transmission fluid, rear end fluid, and wiper blades; use a vacuum; fill fluids, and offer the quickest and fastest service for the convenience of the customers.
B. Business Tracking
Dealers must schedule and track business for peak periods during the day. They may require part-time help, which they have never had the luxury of having. And this does not address the potential of future technicians who are looking for a career when they are hired by quick oil change franchises.
We are currently living in a fast service world—whether we like it or not, we must face and understand this creature. We must track it, know it, and perform all the necessary duties to learn and know the efficiency of our bays and technicians.
Questions to be asked are, how many oil changes will we complete between 7:30 a.m. and 8:00 a.m., etc.? What days of the week do we have the most business? What months are we going to potentially need more technicians than others? All these questions require a complete evaluation of your store and require prior planning. Training is also crucial.
C. Using Lifts
Until Manufacturers started the Express Service components of their business plans, an advantage of the aftermarket quick oil change shops was the ability to drive customers through and over a pit where one technician worked underneath the car, and another worked on top. This allowed the customer to remain in the car.
The Manufacturers Express initiatives, in conjunction with several lift companies, developed a walk-around, and specific express service lifts that could accommodate a technician above the car while another worked below. This new equipment allows a dealership to provide the same quick service as well as some of the “equipment advantages” of the aftermarket shops. This was achieved without digging a hole in an already existing OSHA safe service department floor.
Dealers may have to invest in a lift or two for their quick oil change operation. The expense of these lifts can range from $20,000 to $30,000, depending on the manufacturer and weight limits needed to support vehicles being serviced. Although this may seem expensive, consider OSHA and the liability of tearing up an already existing foundation and structure. You may triple your cost as well as the chance of having to deal with water tables, underground rock, and leaks. In addition, the downtime associated with tearing up the floor in two or three bays is avoided.
D. Additional Service Sales
Customers have become much more aware of the attempts of the aftermarket quick oil change operations to sell additional services to them—however, most customers still feel the dealership is more qualified to keep up with factory-needed services. For this reason, many quick changes oil companies have adopted the approach of advising the customer rather than trying to sell the services during the initial visit.
This leads to another way that dealerships can compete and keep the bay open for the next service. Follow-up systems now become an extremely important subject. This is an area in which dealers have failed miserably within a market where quick-change stores have succeeded. For example, look at most warranty follow-up scores.
IV. Service Manager Responsibilities
Service managers must be trained to properly schedule hourly technicians at peak times. In addition, they must market properly to increase traffic at off-peak times.
Service managers must learn to control the effective cost of sale and gross profit separate from the rest of the department. It is recommended that you monitor your quick oil change operation as a separate business. The only way to accomplish this is to have separate numbers (on your statement or some other way) to manage.
V. Pay Plans
Many aftermarkets pay plan structures have changed due to recent and past “overselling.” It was determined that commissioned pay plans were not the root cause of misused and unreasonable selling practices.
All the many pay plans available in today’s market have benefits. Because hourly pay plans are used in the aftermarket and are easier to implement for lesser skilled technicians, why can’t they work in a dealership environment, provided we understand the effects? All three types of pay plans will work—commission, flat rate, and hourly—but some may have advantages over others.
Let us look at the effects of the financial side of one quick oil change bay with the following design criteria:
| Number of technicians | 2 (one on top and one on bottom) |
| Hourly wage per technician | $16.00 |
| Oil changes per 8-hour workday | 24 |
| Price per oil change | $59.95 |
| Retail parts price per oil change | $36.00 ($30.00 for oil, $6.00 for filter) |
Keep in mind that this is one oil change every 20 minutes. Surely, we could do better with a captive market, and we must consider parts profit.
The following calculations determine labor sales per day and labor cost per day. Labor cost per day is then subtracted from labor sales per day to determine gross profit per day.
$59.95 (price per oil change) – $36.00 (parts price per oil change) = $23.95 (labor sales per oil change)
$23.95 (labor sales per oil change) x 24 (oil changes per day) = $574.80 (labor sales per day)
8 (hours per day) x 2 (technicians) x $16.00 (hourly rate per technician) = $256.00 (labor cost per day)
$574.80 (labor sales per day) – $256.00 (labor cost per day) = $318.80 (gross profit per day 55.4%)
The following calculations determine labor sales per month and labor cost per month. Labor cost per month is then subtracted from labor sales per month to determine gross profit per month.
$574.80 (labor sales per day) x 0.92 (92% calendar utilization) = $528.82 (adjusted labor sales per day)
$528.82 (adjusted labor sales per day) x 21.3 (workdays per month) = $11,263.87 (labor sales per month)
$256.00 (labor cost per day) x 0.92 (92% calendar utilization) = $235.52 (adjusted labor cost per day)
$235.52 (adjusted labor cost per day) x 21.3 (workdays per month) = $5016.58 (labor cost per month)
$11,263.87 (labor sales per month) – $5016.58 (labor cost per month) = $6247.29 (gross profit per month (55.5%))
With an increase to 30 oil changes per day, labor sales increase and, of course, labor cost remains the same. This results in a 6.1% increase in gross profit per day.
$59.95 (price per oil change) – $36.00 (parts price per oil change) = $23.95 (labor sales per oil change)
$23.95 (labor sales per oil change) x 30 (oil changes per day) = $718.50 (labor sales per day)
8 (hours per day) x 2 (technicians) x $16.00 (hourly rate per technician) = $256.00 (labor cost per day)
$718.50 (labor sales per day) – $256.00 (labor cost per day) = $462.50 (gross profit per day (64.4%))
Hourly technicians produce a fixed cost of sale. The disadvantage of hourly technicians is that it can cost you everything if your quick oil change business is not productive.
With hourly technicians, you must determine how many oil changes are required per day to maintain your current gross profit. First, figure out the required number of oil changes.
8 (clock hours) x 0.3 (flat rate you would pay a regular technician) = 2.4 (oil changes needed per hour)
2.4 (oil changes needed per hour) x 8 (clock hours) = 19.2 (oil changes needed per day)
Next, back into the hourly rate you want to pay the technician to maintain a gross of 64.4%.
19.2 (oil changes needed per day) x $23.95 (labor sales per oil change) = $459.84 (labor sales needed per day)
$459.84 (labor sales needed per day) x 0.356 (35.6% cost of sale) = $163.70 (labor)
$163.70 (labor) divided by 8 (clock hours) = $20.46 (labor per clock hour for one technician or $10.23 labor per clock hour for two technicians)
Test:
19.2 x $23.95 = $459.84
8 x 2 x $10.23 = $163.68
$459.84 – $163.68 = $296.16 (for a gross profit of 64.4%)
To compare the results against a flat-rate technician, we must convert oil changes to flat-rate hours.
One flat rate technician:
8 (clock hours) x 1.0 (100% production) x 0.92 (92% calendar utilization) x $79.83 (effective rate)
x 21.3 (workdays per month) = $12,514.79 (labor)
Two hourly technicians:
19.2 (oil changes) x 0.3 (per oil change) x 0.92 (92% calendar utilization) x $79.83 (effective rate)
x 21.3 (workdays per month) = $9010.65 (labor)
But compare the difference between flat rate and hourly.
Two flat rate technician cost ($20.00 per flat rate hour):
8 (clock hours) x 1.0 (100% production) x 0.92 (92% calendar utilization) x 21.3 (workdays per month)
= 156.76 (flat rate hours) x $20.00 = $3135.36 x 2 = $6270.72
Two hourly technicians’ cost:
8 (hours) x $10.23 x 2 (technicians) x 21.3 (workdays per month) = $3486.38
| Flat Rate | Hourly | |||
| $12,514.79 | sales | $9010.65 | sales | |
| – $6270.72 | cost | – $3486.38 | cost | |
| —————————- | —————————- | |||
| $6244.07 | gross profit | $5524.27 | gross profit |
Look at what happens if your hourly technicians do 30 oil changes.
30 (oil changes) x 0.3 (per oil change) x 0.92 (92% calendar utilization) x $79.83 (effective rate)
x 21.3 (workdays per month) = 14,079.14
| $14,079.14 | sales |
| – $5448.24 | cost |
| —————————- | |
| $8630.90 | gross profit |
We can really take advantage of the pay plan as hourly technicians become more productive. Why couldn’t we increase the hourly rate as the technician’s productivity increases?
VI. Summary
The critical steps toward planning your quick oil change business are as follows:
- Determine the number of oil changes you currently perform per day. M5 ROSE can provide information for this purpose
- Know how you want to pay your technicians by using some of the following:
- Current average technician’s weighted cost of sale.
- Current customer pay effective rate.
- Gross profit percentage.
- Labor charge per oil change.
- Oil change flat rate hours charged.
- Daily total hours of operation.
- Location of bays—close to the door, easy to access, etc.
- Parts gross discount buying privileges:
- Bulk oil discount.
- Buying oil filters at gross discounts.
- Equipment is needed based on the volume of business.
- Create an advertising plan of attack.
- Train your technicians to look for opportunities.
- Develop write-up procedures in the driveway.
As you can see, deciding to jump into the quick oil change business is not a walk in the park. You must be prepared to answer the logical questions that most service operations are not prepared to answer. These questions involve items such as calendar utilization, production percentages, personnel structure, space, equipment, and training as we move into the fast-paced, highly demanding business we are facing in the years to come.
