Why am I not Making Money in my Service Department?

As dealerships press for profitability in a challenging economic climate, now is the time to look for hidden opportunities and greater efficiencies – all while maintaining a dedicated focus on eliminating roadblocks to success. One area that certainly merits a closer look is the service department.

Dealers have a tendency to look at high level indicators of store performance.  The questions often heard at month end are: “How many cars did we deliver?” or “Where is fixed gross going to end up this month?”  But rather than focusing on performance from an altitude of 10,000 feet, perhaps more specific questions should also be asked such as: “How did our fixed operations performance compare to our facility potential?” or  “Why did we fall short of expectations?” or “How productive and efficient are our technicians and what opportunities do we have to make improvement?”

In order to ask these questions, it is important to understand the underlying factors that drive the service department’s profitability.  While there are many variables that work together to generate profits, a closer look at key performance indicators can reveal the truth behind the results appearing on the financial statement. Examine the Seven Controllable indicators that the Service Manager/Director can control every day.

    1. Clock Hrs. Worked Daily
    2. Productivity %
    3. Days Worked Monthly
    4. Overall Effective Rate
    5. Calendar Utilization
    6. Gross Profit %
    7. Monthly Expenses

So ask yourself “Do you or your manager understand how to implement and use these indicators?” Most Service Managers were former Technicians or Service Advisors and have not been given the proper training to understand how the calculations work.

In addition to analyzing the service department indicators above, dealers should investigate roadblocks to maximizing labor sales. They should ask questions of department management such as:

  1. What is causing technicians to spend time away from their bays? 
  2. Are parts supply causing delays?
  3. Is the distribution of work to technicians appropriate for their skill level?
  4. Do technicians have performance goals set and reviewed daily?
  5. Are technicians properly trained?
  6. Do technicians have the correct tools and are the tools in good working order?
  7. Are staffing levels appropriate to meet customer demand?
  8. Are your Service Advisors trained, equipped and providing World Class Service to all of your customers? 

Another very important consideration not to be overlooked is the employee morale. Studies have shown time and again that positive employee morale drives increases in productivity.  It is important to ensure that the dealership management promotes a culture of recognition and reward for a job well done, especially in the service department.  Consider evaluating pay plans and implementing a pay or bonus structure that rewards employee efforts to improve efficiency and productivity.  Eliminate “cancer” in the shop by evaluating personnel and either counseling or removing employees who create a negative influence or distraction to others.

Now that we have established the possibilities of “what could be wrong, and why you may not be profitable in your Service Department”. What is the solution? How do I fix it.? Well the answer is to evaluate and implement processes to correct the behavior that is failing. First I recommend having an M5 Consultant from the outside come in and complete and Executive Assessment – On Site Analysis. Everyone needs advice at times from others. We are not Psychologists we are subject matter experts in Fixed Operations that can help you identify, change, and implement processes to make you more profitable and have fun doing it. Give us a call.


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