The Dealership Service Department Takes It on the Chin

By Brendan Moore

02.09.2009

While new-car sales have crashed at car dealerships, the service department is also taking some lumps in this downturn. Not only is the amount of warranty work greatly reduced because new car sales have plummeted, but the other non-warranty work has also dropped because of the struggling economy, despite some predictions of greater service work volume.

In the past two weeks, I have spoken with three service managers from three different dealerships. None of the service managers ran a single-point service shop; that is, they all had at least two makes to look after, and one of them had three makes to service. Among the three service managers, they serviced domestic, German and Japanese manufacturers.

The stories were similar – the shop revenue starting dropping in the third quarter of 2008, dropped a lot more in the fourth quarter of 2008 and is in the pits so far this year. People are waiting longer to get that noise checked out, they’re skipping the scheduled maintenance intervals or stretching them out, they’re asking if the dealership offers payment plans, etc. Two of the service managers commented that the only types of service volume that have increased are complete engine and transmission replacements.

The replacements are the obvious consequence of the putting off of regular service, and although the dealerships are happy to have the work, the service managers say the revenue still doesn’t come close to making up for the far greater number of customers paying for regular maintenance or minor repairs.

All three of the service managers stated that they had reduced their revenue forecasts compared to 2008 and expected 2009 to be a very difficult year. All of them had reduced their staff of mechanics and detail people in 2008 and expected to reduce their staff further in 2009.

This, despite the fact that Paul Taylor, chief economist for the NADA (National Automobile Dealers Association), predicts that parts and service departments are expected to see a revenue gain of about 3% this year because people will be holding onto their old cars longer.

But the managers I talked to were not seeing any increases or any possibility thereof.

One of the service managers stated that he thought the service revenue for his dealership would drop more as a percentage than the new-car department by the end of 2009. That was the worst of the forecasts; the best was the three-import service manager who is shooting to match 2008 in total revenue.

Of course, even the worst-case forecasts for all of these service managers is not really the worst-case scenario. The worst-case scenario is that their dealership, like so many others recently, will go under. It is a real possibility for all except the very strongest of dealerships – strong in both in financial reserves and sales. 2009 promises to test every part of the retail auto business.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. I’m willing to bet that the service departments come out ahead of the 2008 numbers this year. It might be a slow start this quarter, but people can’t hold off on maintenance and repairs forever, and since they’re not buying new cars, they need to keep their old car running.

  2. Yes, people can’t hold off on maintenance and repairs forever. However, they certainly can have maintainance and repairs performed at a local independent shop where the labor rates are 1/2 to 3/4 the dealership rate.

    In a tightening ecconomy, paying extra to have “Big City GM Deler” work on your Chevy is a luxury.

  3. Agree with Mark, the shop where I take my three cars has more business than they can handle and I trust them a lot more than any dealer’s service shop.

  4. Hi,

    I just had my car repaired and split the work between the dealership (recall work) and a nearby repair shop (maintenance) because the dealership wanted $80 for a basic oil change. If dealers want to retain the business, they need to lower their prices within range of non-dealer repair shops so that I can’t save 50% by driving across the street. Recessions make us all price-sensitive, so they’ll need to adjust to get a bigger chunk of the pie.

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