Boost Profitability: Fixed Operations for Dealerships

In today’s competitive automotive landscape, fixed operations are more essential to a dealership’s profitability and long-term success. Unlike the variable nature of vehicle sales, fixed operations — comprising the service and parts departments — offer a consistent and dependable revenue stream. These departments handle everything from routine maintenance and repairs to parts and accessory sales, playing a pivotal role in customer satisfaction and retention.

This article explores the key components of fixed operations, effective management strategies, and how consulting services can provide dealerships with a competitive edge.

Key Components of Fixed Operations

Fixed operations are the backbone of a dealership, offering stability amid fluctuating vehicle sales. Key components include:

1. Service Department: Responsible for diagnostics, repairs and routine maintenance, this department ensures vehicles remain safe and efficient.
2. Parts Department: Manages inventory and ensures timely availability of parts for both service department needs and retail sales.
3. Customer Experience: Exceptional customer service fosters repeat business and builds long-lasting customer relationships. A well-run fixed operations department enhances trust and loyalty.

While vehicle sales can be unpredictable, the need for vehicle maintenance remains constant - making fixed operations a reliable source of income that supports the dealership during slower sales periods.

Fixed Operations Management Strategies

Efficient management is key to unlocking the full potential of fixed operations. Effective strategies to consider include:

Streamlining Processes: Implement scheduling software and inventory management systems to streamline processes and to reduce wait times, improve customer satisfaction, and increase throughput. This can greatly improve operational efficiency.

Investing in Training and Development: Continuous staff training ensures technicians and service advisors stay current with evolving technologies and will enhance customer satisfaction.

Prioritizing Customer Relationship Management (CRM): Effective communication, transparent pricing, and follow-up calls can improve customer satisfaction and loyalty. A customer relationship management (CRM) system can help track customer interactions and preferences, allowing for personalized service.

Monitoring Performance Metrics: Tracking key performance indicators (KPIs) helps ensure operational efficiencies in areas such as labor hours sold, parts sales, and customer satisfaction scores and can provide insight into areas for improvement.

Key metrics include:

1. Sales Efficiency

   • Average parts sales per customer pay repair order
   • Average parts sales per warranty repair order
   • Average monthly sales per parts employee
   • Average monthly gross profit generated per parts employee
     
     

2. Productivity

   • Total parts department gross profit as a percentage of sales
   • Average gross profit as a percentage of sales on customer pay repair orders
   • Total personnel expenses as a percentage of gross profit
   • Total department expenses as a percentage of gross profit
   • Department net income as a percentage of sales
     
     

3. Inventory Efficiency

   • Days’ supply of parts inventory
   • Percentage of parts in inventory over 6 months
   • Percentage of non-stock (special order) parts in inventory
   • Annualized true turn of parts inventory
   • Frozen capital as a percentage of parts inventory
   • Same day fill rate percentage

Neglecting these metrics can lead to excessive frozen capital, reduced profit margins, and can lower the annualized return on investment (ROI). For example:

• Company A: 34% gross profit margin, clean inventory, 6 turns per year – 204% ROI.
• Company B: Same 34% gross profit margin; aged inventory,4 inventory turns per year – 136% ROI.

Leveraging Technology: With the ongoing labor shortages, many dealerships are increasingly turning to technology to automate and maintain efficiency. Consider automating:

• Billing functions
• Financial reporting
• Warranty records maintenance
• Service history tracking
• Technician time tracking
• Detailed parts invoices

Technology not only streamlines operations but also enhances the customer experience.

Fixed Operations Advisory for Dealerships

Dealerships turn to fixed operations consulting services for specialized guidance and support. Many dealership operators come from the sales side and may lack the financial knowledge to manage fixed operations effectively. This is where fixed operations consulting becomes invaluable.

Advisory consultants bring industry-specific knowledge and can assist with integrating sophisticated technology solutions that streamline operations and improve customer experiences. This includes implementing software for scheduling, inventory management, and CRM platforms to optimize performance.

How Citrin Cooperman Can Help

Fixed operations are a cornerstone of a dealership’s success. Whether you are a small dealership or part of a large network, investing in fixed operations is a smart, strategic move. Citrin Cooperman’s Automotive Dealerships Industry Practice helps businesses enhance their fixed operations to secure a stable, profitable future. For more information, reach out to Joe Bueti or your Citrin Cooperman advisor.