Challenge
It is harder than ever to generate the same revenue from parts and service customers. Vehicle quality has consistently increased over the last decade, and preventive maintenance needed for these models has been reduced. Even oil changes have become less frequent—with the introduction of synthetic oil blends. The bottom line is that it is difficult to identify the right marketing plan to increase your service department’s gross profits and year-to-year sales. Where can we find a market opportunity to drive in customers?
Approach
Over the years, dealerships have emphasized new car sales and service. Some have forgotten the older model vehicles. What would be the result if we specifically targeted those older-year models, and how would that affect the dealer’s profitability? Perhaps service managers should rethink the paradigm of their primary market being the servicing of new vehicles. This shift in focus could boost the dealership’s profitability during more difficult economic times.
By increasing the scope of your promotion to include older models, you could bring in vehicles needing more service than vehicles half their age. Also, these older cars will need parts that are more expensive and require higher labor charges. This combination will increase the average amount of the dealership’s repair orders—making the dealership more profitable.
A Database Diagnostic™ report for three Midwestern import dealers showed the gross revenue for the most profitable model years. All labor and parts dollars were analyzed to account for the lack of warranty work on older vehicles and the lack of customer-paid work on the newest models. The goal was to have yearly totals in order to do a trend analysis to find the model years of vehicles with the greatest sales opportunity for the service department. The recommendation was a direct mail and e-mail promotion to reach owners of older-model vehicles.
Results
The data for the 8- to 10-year-old models shows that the average repair orders for those years have the highest value of all year models. The higher average repair order (RO) amounts show the market potential for this otherwise forgotten group. In fact, the average RO for vehicles 8- to 10 years old was consistently twice that of those up to 5 years old. While it is true that older vehicles come in somewhat less often, this fact is negated by the large dollar amounts they represent once they are at the dealership.
| 0 – 5 Avg. | 8 – 10 Avg. | % Increase | |
| Dealer 1 | $142.42 | $278.11 | 95% |
| Dealer 2 | $108.05 | $224.96 | 108% |
| Dealer 3 | $124.51 | $280.73 | 125% |
Looking at the chart below that shows annual gross sales, one can see that years 8-10 provide 35% of all gross revenue. It is worth mentioning that they achieved a similar amount of revenue with fewer visits.
| MODEL YEAR BREAKDOWN OF ANNUAL GROSS SERVICE REVENUE | ||
| Year | % of Total | Gross Sales |
| 2000 | 11% | $ 2,632,470 |
| 2001 | 11% | $ 2,655,902 |
| 2002 | 13% | $ 3,127,178 |
| 2003 | 13% | $ 3,126,080 |
| 2004 | 14% | $ 3,360,184 |
| 2005 | 13% | $ 3,211,143 |
| 2006 | 11% | $ 2,745,870 |
| 2007 | 10% | $ 2,462,814 |
| 2008 | 4% | $ 981,794 |
| 2009 | 2% | $ 447,660 |
Summary
The tight marketplace requires that service managers think out of the box when defining their market and their customers. Sometimes it pays to challenge industry standards and look at your data as a way to direct marketing decisions. According to our research, dealers should be using direct marketing to reach customers with 8- to 10-year-old vehicles. The dealer could make three times as much or more by servicing an 8-year-old vehicle as opposed to a 2-year-old vehicle. An older-model vehicle target approach could boost gross sales by creating programs to target vintage vehicles with price-competitive coupons. One strategy would target only older vehicles. Another would be to target all potential customers regardless of UIO.
