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Lee Harkins' Thoughts
In our business, Customer Retention must be our ultimate goal! Your competition has been successful in stripping away at your business. These independent service providers are fighting for every customer they get! Your fight must include focusing on making your operation “different” than before! Remember, they disqualified your operation because of the way you were. Not changing anything and then thinking they will return is a poor strategy.
M5™ can help you and your dealership develop tactical methods to advance your business. Call us for suggestions! It would be our pleasure to help.
Thank you,
Lee Harkins
President and CEO
M5™ Management Services, Inc.
leeharkins@m5ms.com
Please be sure to share your reply to the survey questions listed below. After supplying your response, notice how your operation compares to the others.
Also note, the questions will change from time to time, so be sure to check back!
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Profitable Wholesale for the Average Dealership
by: Jim Richter
 I wish I had $1000 for every time a dealership has complained to me that their wholesale business has been stolen by one of the “Big Boys” who has come into the market. The reality is usually that it was ripe for the taking. Any business that takes it’s customers for granted, that practices predatory pricing, or doesn’t take good care of its customer base eventually loses out to someone who has more resources or who can provide the same service for less cost.
It isn’t just about price!
For years the volume wholesale parts business has been driven by price. Everything was governed by discounts and manufacturer compensation to make up for lost gross profits. That game is over for all intents and purposes. The only dealers that can garner additional discounts from vendors these days are those who can afford to purchase by the skid or truck load. This effectively eliminates the average dealer from sharing in these cost reductions. Those dealers who did business based on price alone are now seeing their markets taken over by the high volume chains. They have also learned that dealing on price solely does not create a loyal customer since they will do business with whoever is the least expensive.
The building blocks for a successful wholesale business.
There are four main considerations that must be in place to be successful in a local market.
- Customer Base.
The dealership must know its customers very well. They must have a personal business relationship with them, which ranges from knowing them by name to having a comfortable credit arrangement established. There must be a level of trust established which transcends that of the high volume operations where they are just another account number. This provides a personal level of service which most of us want when we are doing business with someone else. It’s like going to the local hardware store instead of the big national chain superstore. You can talk to the owner or manager, get advice for your specific needs, and buy what you need without being subject to pre-packaged kits that may not really serve your needs.
- Product availability.
Depending on whether the customer wants crash or hard parts, the trick is to meet their expectations from stock if at all possible, or to provide customer’s orders in a timely fashion. Known as Level of Service, the expectation is directly related to the customer’s need, not yours. The inventory that is tailored to the demands of its Customer Base is the one that is most successful in this regard.
- Customer service.
Most dealers translate this into trucks and drivers, forgetting that there are other means of delivery which may be more cost effective for both them and their customers. Other issues such as telephone access and knowledgeable specifiers are very important to customers.
- Price considerations.
Price is always an issue, but if you take care of your customers and you have what they need you can always get a fair price for your products. Get greedy and you will soon find your customers going elsewhere.
Building the Customer Base.
Good customers are rarely found, they are created and cultivated. A loyal customer is one who enjoys working with you, trusts you, and relies on you to bail them out every time they need you. The word ‘you’ appears so often because the creation of a good customer is something only the dealership can do. Loyalty is something you earn, it is not automatic or granted. Even if you think you have a captive market you still need to earn and maintain the good working relationships that allow mistakes and problems to be overlooked. It begins by selecting who you want to do business with.
- Always begin by requiring a copy of their tax license, and by performing a credit check. One of the primary reasons business relationships go sour is over accounts receivable. New customers should pay for their initial purchases with a check or credit card, including verified identification, until the credit check is complete. Chances are the F&I department can run this for you on the spot if you want to extend credit immediately, but it is better to have a purchase history before opening a line of credit. If you grant tax relief and they are not entitled to it, guess who gets burned during a sales tax audit? The best practice is to ask for updated copies of the license every year, and January is a good time to do this.
- Assign a discount code to every customer based on your purchase experience with them, and require that your sales staff enter the customer number into the DMS before quoting prices! Discounts should be earned by good performance, including minimal returns. Customers who abuse your inventory should pay for the privilege with a reduced discount, but you can only manage that if the correct price or discount code is quoted to them initially.
- Visit the customer. It’s always a good idea to put a face next to the name that customers call. If that face is your delivery person, ask yourself if that’s the face you want your customers relating to your business.
- Thank them for their business. Holiday and anniversary cards, candy jars, hats and other trinkets work well with the employees of these customer businesses. The owners understand something different. Don’t be afraid to take a good customer out to lunch or dinner, or even a local show or similar activity.
- Always resolve problems personally. Telling the driver to control returns from a rogue body shop is rarely successful. A visit from the parts director/manager is more likely to get their attention, and may turn a bad customer into a good one.
- Review every customer’s performance on a regular basis. Be sure a good customer remains as such, and respond immediately when a problem is indicated.
Providing product on a timely basis.
The inventory that you stock for your wholesale customers can vary from what your own service and body shops need from you. If you are active in the crash business you will find that the demands from large body shops will reflect the insurance companies they are affiliated with. A lot depends on who they sell policies to in your market, and the demographic profile of the owners. The more expensive the vehicle the more likely it
will be to have collision coverage in effect long after the popular priced models have dropped it. The fact is that the vast majority of crash repairs involve insurance participation; especially with the long term financing that has been sold over the last few years. Yes, this also involves using non-OE parts after a while, if they are available. If we agree that this is actually a business inside of our hard parts repair business, then we need to do the following:
- Source crash parts separately. You want a ready supply of structural and paintable parts so a shop can get a job started, and you can lock it in. Depending on where you are there may be a very seasonal demand pattern, or it could be steady all year long. Mixing these parts in with the general population of repair parts does not make sense since they are neither bought nor sold the same way and almost always result in a discounted sale. A good manager should be able to measure the return on investment for this type of business since profitability is more difficult to maintain.
- Set Phase-In and Phase-Out parameters to be less responsive to short term demand, unless you live in the Snow Belt where your demand is very seasonal. If you have Daily Stock Order use it to reduce the quantities on hand. In most cases 1 piece will probably do the job, especially if it can be replaced overnight.
- Source color and trim items separately again, and set their parameters to very high Phase-In thresholds. In most cases you want to order these parts specific to the job, and you will gain nothing from having them in stock since you will probably use the DSO anyway.
- Post aggressive Lost Sales. Wholesale buyers will shop heavily because they need the part. If you have it there is a very high likelihood that they will buy it from you, and they really do need it; now.
- Control returns by controlling mistakes. Non Stock returns are the #1 cause of obsolescence. Make sure that the ordering information from the customer is correct. Don’t assume a color trim; get the code, and better yet be sure you have the VIN before even starting the order. Get a copy of the estimate and verify the part numbers. Make sure your people have the stocking and return status of the part on their screens when they quote a part. Get the delivery receipt signed before the parts are left off. This keeps damage claims to a minimum. Utilize restocking charges for Non Stock parts to cover your cost of returning or scrapping.
- Scrap Junk. If you can’t return it, and you can’t sell it again, get rid of it. Don’t expose yourself to the cost of ownership if there’s no prospect of future sale. If you get a purchase discount from the franchise use it for scrap, not extra gross profits.
Provide good customer service.
Good customer service has some basic elements that everyone in your department should be aware of.
- Answer telephones and e-mails promptly. If you don’t respond quickly the customer will take their current search and future business to someone who will. Take a good hard look at the phone system, and whether it can work properly for you. The same goes for e-mails. Do they come directly into the department? Are they collected and relayed from a BDO internet person? Is anyone held responsible to clear and respond to them? Is this response time being tracked? By whom?
- Have qualified people answering customer requests. Training and coaching is invaluable. Indirect sales are difficult, and proper skills development goes a long way toward making your people successful.
- Don’t have wholesale calls directed to the shop counter. It doesn’t work! You either alienate your primary customer, the technician, or your wholesale customer by giving them what is obviously divided attention. If you can’t support a full time wholesale salesperson then combine it with the retail counter sales.
- Deal with problems immediately. Don’t ignore them because they won’t go away, but the customer might. Get to the truth and resolve it to everyone’s agreement (you’ll notice I didn’t say satisfaction.) It may not be the best answer, but come up with one you can live with and go forward.
- Be creative with deliveries. Use 3rd party drop if it’s available; overnight freight from some of the major shippers can be much more cost effective, and quicker than using your own truck. Tailor the routes to daily activity, not routine stops. This is a parts delivery service, not a bus route.
Tailor price to customer loyalty and purchase quality.
After all of the above is completed your customer still expects a discount, and they deserve one based on how good of a customer they have been. Performance should be rewarded, and we will talk about this and more in the next article which will continue this process.
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Automotive News Dealer Intelligence Webinar
Please join Lee Harkins on:
Tuesday April 19, 2:00 PM ET/11:00 AM PT
Have your customers changed their buying habits? Research suggests they are turning to independent service providers more often. NADA statistics show that customers are 70% more likely to buy a new car from a dealer if they use the dealership for ongoing service. Operating a profitable fixed operations is critical to the continued growth of all dealerships. Recent statistics indicate that service and parts represent just 12% of revenue but 57% of a dealer's profit. Seize this opportunity and don't miss out on unlimited growth potential. Join Automotive News and Lee Harkins, a fixed operations consultant and coach in the automotive service industry, for this valuable informational webinar.
Dealership Leaders Will Learn How To Implement These Key Items Immediately:
- Learn how stocking & selling tires can increase your dealership's gross profit by $150,000 or more each year.
- Find out how to position your dealership as the "Vendor of Choice" to your greatest asset, your customers.
- Capitalize on your 24/7 TV commercial... your website. Learn the top 10 items that MUST be included on your fixed ops webpage.
- Keep your customers out of the independent service provider and in your service department.
Here's What Dealers Are Saying About Webinar Presenter Lee Harkins:
- "We saved $10,000 in one day" Jerry Henderson Elder Chrysler, Athens, TX
- "Innovative, cutting-edge ideas" Mark Hargreaves, Fixed Operations Manager Rick Hendrick Dodge, Charleston, SC
- "We are a more productive and more profitable service department" Lee Bradley, Service Director Delray Honda, Delray Beach, FL
This webinar will provide ideas and concepts to drive your fixed operations to new heights, capitalize on opportunities, and improve customer retention.
This live webinar will take place Tuesday, April 19, 2011 at 2:00 PM Eastern, 11:00 AM Pacific. Following the presentations, the speaker will be available for a live, interactive question-and-answer session.
The cost for attending this Dealer Intelligence Webinar is just $59 now through April 14, $99 thereafter.
Even if you can't participate in the live session, sign up anyway to get the recording afterwards. We hope you can join us!
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Skid Marks
Skid Marks is an ongoing article series that shares the lighter side of working in a service department. All the stories are true. Brand names and real names have been removed.
I know some of the funniest things we see are sometimes not the most proper or politically correct things in the world, but in my opinion, they can still be funny and make us laugh. Maybe that’s the problem with the world today...we are way too serious! But, with that being said, I want to share a story regarding an older lady who used to visit our dealership on a regular basis for a chronic “airbag (SRS) light” issue.
It seems that this lady would visit almost once a month, and the problem that she had became apparent sooner than later. It seems the problem was that the lady had a bladder control issue, and when you gotta go...ya gotta go! Well she did. Once you stuck your head in the car it became apparent what the issue was. What I mean by that is the nose knows!
Now this is where some people might take issue with my story, but the funny part is not about the lady and her problem. The funny part to me happened when she would pull into the dealership drive. The Advisor would be prompt and proper with the write up. Knowing full well what the problem was, and there was nothing we could do to fix it without replacing the seat since the moisture had caused some of the wires to fray, short-out...whatever! It kept causing the light to come on, and she did not want to hear about replacing the seat. “Just fix it, and it’s covered under warranty”.
Now the Advisor would come into my office and tell me that Mrs. “Smith” was here, and I need to go find a tech to work on the car this time because they don’t listen to them anymore. Well, I agreed, and so I grab the paperwork and head into the shop to find a volunteer, and what do I find?
CRICKETS, AND COBWEBS...NOT A TECH TO BE FOUND...Hello! Hello!...Anybody?!?!?!
Needless to say, they knew that Mrs. “Smith” was here, what she wanted, and knew that we couldn’t fix it, but they figured if they could all hide maybe she would just go away. Well, once I found a couple hiding in the rafters, so eventually I got my shop foreman to have everybody draw straws, and we had a winner!
The funniest thing I have ever seen is my “lucky” tech heading out into the parking lot with his custom made “Clean-suit” made out of industrial garbage bags! One for the pants and one for the jacket – surgical mask and gloves. You’d think he was working at a nuclear power plant! Who knows? Maybe he would have preferred it.
We all sat around and laughed about it for a second, reset the light, and moved on. From that point on it was always a process of elimination, unless we had a new tech to christen into the brotherhood. I think eventually we did some kind of wire repair to fix the issue, but to this day it makes make laugh when I think of that.
If you have a funny story that you'd like to share with your peers in the industry please send them to newsletter@m5ms.com and we will include them in a future Skid Marks article. Please remember that we will remove ALL brand names and real names.
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