Dealership profitability relies on vehicle sales, yes, but just as significant — or more so — from the service department.
A 2019 Cox Automotive study showed that 49 per cent of dealership gross profit comes from fixed-ops, although the COVID-19 pandemic most certainly cut into that as people were driving less.
Regardless, it’s big money, and an emerging threat to that revenue is electric vehicles, as we noted in this story. EVs don’t have the typical maintenance issues of internal-combustion-engine (ICE) vehicles, such spark plugs and air filters. EVs will still need tires, shock absorbers and windshield wipers, etc., and they will have other systems to address. But the general consensus is that fixed ops is in for a hit.
A 2020 study by U.S.-based Consumer Reports found that, compared with ICE vehicles, EVs and plug-in hybrids had 50-per-cent lower average lifetime repair and maintenance costs for the same distance driven.
If roughly half of dealership profits come from fixed-ops, and EVs slash that by half again, then retailer concern is understandable.
Fewer service visits mean less revenue and less opportunity to upsell customers into new vehicles.
If there’s a silver lining, it could be winning back business from the aftermarket. Customers might want to continue going to the dealership for repairs after the warranties for their EVs expire, instead of heading across the street to Canadian Tire or Costco, which is common with ICE vehicles. The J.D. Power 2021 Canada Customer Service Index shows that the aftermarket gets 54 per cent of vehicle service visits.
“What’s more, aftermarket locations increased their share of overall industry revenue to 44 per cent in 2021 from 40 per cent in 2020, representing a swing of more than $200 million in relative revenue share. This reverses a multi-year trend of new-vehicle dealerships steadily taking a greater share of revenue.”
Will EVs pull back that needle? Logically, yes. Dealerships are the experts on the brand of EVs they sell. They will have the specialized parts, and their techs will have the specialized training and tools. By contrast, the aftermarket will have to be an expert on all EVs from every automaker. That level of training and commitment to tools and processes seems like a tall order.
EVs could keep fixed-ops departments from losing business over the long haul, but there’s another way to do it: by making customers happy.
But how? With communication. Spoiler alert, it increases satisfaction, according to the J.D. Power study. Prompt and detailed communication about what repairs are needed, and the basics: a text message when the vehicle is ready to pick up. No communication drives people crazy.
“That’s the big beef that customers have with car dealers, is not getting timely information about … is my car finished and when is it going to be finished,” said Dan Robinson of Kimoby in the Aug. 5 Automotive News Canada podcast. He steered the design of a platform that speeds transactions and integrates communication between dealership departments and with customers.
“This is not revolutionary, this is what customers expect now.”
Bonus: Texting can also increase profitability by reducing the time it takes customers to give the go-ahead for repairs. It “drives productivity within the shop,” said Robinson, adding that BMW is mandating that its retailers have such a solution.
Whatever drop in service visits dealers experience with EVs can be made up for with efficiencies and increased customer loyalty — and with great service and communication — but that will require tools and caring for customers, above all.