Metrics help service departments staff for rebound after pandemic shutdowns

Dealership service departments have routinely used data to measure what works and what doesn't in their operations. But the effective use of numbers to help steer fixed ops decisions is even more crucial to pull some service departments out of a deep hole created by the coronavirus pandemic slowdown.

"Service departments are managing by the numbers — what to measure and how to measure it, what the key performance indicators are," says Rick Wegley, an NCM Institute instructor for NCM Associates, Kansas City, Mo.

Manny Escalon, service director for Beck & Masten Buick-GMC South in Houston, says that is how he is making decisions these days.

"It's all about the metrics," he says.

For instance, Escalon says the coronavirus business slump this spring forced him to postpone adding a position to the dealership's business development center. He estimated the position would cost about $2,200 per month in salary and benefits.

By mid-July, performance data had improved enough to give him a green light, Escalon says. The dealership's service department was on pace to rack up 3,300 total repair hours for the month, about 10 percent ahead of its goal, he told Fixed Ops Journal. Looking at the numbers, Escalon expected the new position to produce appointments representing up to $30,000 per month in gross profit.

Dealership service departments around the country are going through a similar process — monitoring data on repair orders, labor hours per repair order and more. A primary task is to decide how many positions to add, or add back, when business rebounds.

"Say the dealership had to do some cutbacks from COVID," Wegley says. "Who do you eliminate? The lower-paid employees? The express-service staff? You get an uptick in productivity, but gross margins go down because you've got the higher-paid guys doing the express service."

How to transition back to where a service department was before the pandemic is a question Wegley gets often. He advises looking at the numbers. "How's the traffic count? If the RO count is going up, then it's time to start adding back," he says.

But in some cases, the jobs are gone for good regardless of whether business has bounced back. Lithia Motors Inc., for instance, cut headcount by about 40 percent in April, with plans to make about half of those reductions permanent. That's partly because Lithia was already restructuring, switching to greater use of online technology before the pandemic arrived, the company says.

In a July 22 conference call, Lithia COO Chris Holzshu says the chain's personnel expense was down 20 percent in the second quarter vs. the beginning of 2020.

He says Lithia is working to reduce its selling, general and administrative expenses as a percentage of gross profit and maintain it at a lower level. Same-store adjusted SG&A as a percent of gross profit was 64.8 percent in the second quarter, down 4.8 percentage points compared with a year ago, Holzshu says. In June, SG&A was down to 57.4%, Lithia says.

"Our stores are well aware their biggest cost is personnel," so that's where many of the cuts are, he says. Lithia is working to make "sustainable" cost cuts in personnel and advertising, Holzshu says.

Lithia, based in Medford, Ore., ranks No. 3 on Automotive News' list of the top 150 dealership groups in the U.S., with new-vehicle retail sales of 180,532 in 2019. At the end of 2019, Lithia had 14,320 full-time employees at 188 retail locations.

Several of the big, publicly traded auto retailers say they primarily laid off or furloughed entry-level technicians and kept senior technicians on the payroll, trying to balance the urgent need to reduce headcount as business fell with the need to retain highly sought-after, experienced technicians. That helped keep service departments prepared for any emergency and kept experienced technicians loyal. But it also cut into profits, says Darrel Ferguson, director of performance management for Xtime Inc., a Cox Automotive company.

Instead of telling customers to "come on in," Ferguson says Xtime uses software to help dealerships schedule service appointments. It takes into consideration what technician skill level is required and available, how long the repair will take, whether the required parts are on hand or need to be ordered and more. If work is planned out efficiently, he says the data show dealerships could continue to afford a mix of entry-level and senior techs.

"Master techs love to change oil, because it's easy," Ferguson says. "But if I have a minimum-rate type of guy doing an oil change that's a special with a coupon, I might pay him $3. I relatively break even, or even make a couple of bucks. But if I pay the $30-per-hour guy $10 to $12 for the same job, in a lot of cases I'm literally writing off a loss."

Dan Korte, service director for Serra Traverse City in Michigan, says during the state's coronavirus shutdown, he eliminated nine entry-level, quick-lube positions and kept his senior technicians even though he knew the hourly expense would be higher.

Some of the quick-lube specialists whose jobs were eliminated were promoted to apprentice technicians and some found jobs in other areas of the dealership, he says. In mid-July, the group had 20 technicians.

Under the supervision of the senior techs, the group's five apprentices do a lot of the oil- changing, he says. Despite the expense, Korte prefers having the senior-level technicians do some of the work the quick-service techs did. The net result has been higher average labor hours per repair order, as the senior techs find more problems that need fixing, he says.

Korte manages service for all of Serra Traverse City's seven brands — Audi, Cadillac, Nissan, Subaru, Toyota, Volkswagen and Volvo — on three campuses.

"It makes no sense to me that typically you've got your newest guy working in the quick-service area where they see the most cars," he says. "In a day, they could see 50 cars while the main-line technician might see eight, or 10 or 12, depending what the workload is."

Korte says early data on the new setup is encouraging. "All of our stores are different, of course, but the approximate average for May was 1.9 hours per RO this year and last," he says. "June was 2.2 hours, 0.2 better than last year. And July so far is 2.5 hours, up 0.8 over last year. They are definitely finding some" additional service recommendations.