Issue Date: Service Advisor Aug 1, 2009, Posted On: 8/1/2009
Policy decisions What does a $1 write-off mean?
Leaving money on the table is just like draining it from
your shop’s bottom line.
Dealerships operate at a notoriously thin profit
margin. It’s just the nature of the business that cycles through feast or famine
as sales peak and bottom-out during a typical year. So one day we can be up and
the next day the shop is losing money.
While realistically there is
a top-end limit on the amount of work we can perform, there isn’t a bottom-end
to losing money short of having no work at all. These factors conspire against
our profit margins to erode gains made during the peak business months.
That is why it is critical
not to get haphazard with your pricing or policy accounts during the
traditional boom months. According to NADA data, the average shop is able to
carry just 5.7 percent of service/parts revenue to the bottom line. For the
entire dealership operation the margin is even thinner. Profits of just 2 or 3
percent are common.
What does this mean? It means that we have it that
much harder if we discount a repair bill or have to write-off a mistake. For
every dollar we lose or give away, it will take $50 in sales to recover that
Here’s an example from a
dealership in New York. A few days ago, while an advisor was rushing through
the morning crunch, he forget to check the delivery date on a warranty job for
a transmission complaint. After all the work was done, a $1,400 claim goes
through the system and won’t be paid because the vehicle was really out of
Thankfully the customer had
an extended service contract – but with a $100 deductible. The shop ate the
$100. That means the profit is gone on $5,000 worth of sales. That’s more than
an entire day’s production for this advisor’s team.
Between laughter and tears
Mike Lichtfuss from Hopkins Pontiac, Olds, GMC in Marianna,
Florida related a story from the service drive that proves that the customer is
He says that one afternoon an
elderly lady pulled into the service drive and rolled down her window. Mike
came over and asked how he could help her with her vehicle needs. She told him
that she could hear a growling noise under her hood and was afraid she might
have engine trouble.
Mike went through the normal
driveability questions, but she had no problems except for the noise, which she
was emphatic about.
Mike asked her to start the
engine, pop the hood and wave when she heard it. He opened the hood and there
was a huge possum squeezed in by the evaporator; baring his teeth and making a
god-awful growling noise.
“So I R&R'd her possum
and her noise was gone,” he said.
Mike continued by saying, “To
all you skeptical advisors out there, sometimes the customer does explain
properly, so listen carefully and the customer may be right.”