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Faculty Publications and Presentations School of Business
8-2019
Fixed Operations Basic Handbook Fixed Operations Basic Handbook
Kendrick W. Brunson
Liberty University
, kwbrunson@liberty.edu
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BUSI 474: Fixed Operations 1
FIXED OPERATIONS BASIC HANDBOOK – BUSI 474
By Dr. Kendrick Brunson
August 2019
BUSI 474: Fixed Operations 2
TABLE OF CONTENTS
PROLOGUE ........................................................................................................................... 5
CHAPTER 1: FIXED OPERATIONS ..................................................................................... 6
OVERVIEW .................................................................................................................................. 6
SERVICE DEPARTMENT ........................................................................................................... 7
Overview ............................................................................................................................................................. 7
Employees ........................................................................................................................................................... 9
Service Department Process ........................................................................................................................... 10
Technicians ....................................................................................................................................................... 11
Loaner Vehicle Fleets ...................................................................................................................................... 12
PARTS DEPARTMENT ............................................................................................................... 13
Overview ........................................................................................................................................................... 13
Process Flow ..................................................................................................................................................... 15
Customer Categories ....................................................................................................................................... 15
Key Metrics ...................................................................................................................................................... 16
COLLISION CENTER ................................................................................................................. 17
Overview ........................................................................................................................................................... 17
Key Metrics ...................................................................................................................................................... 19
CHAPTER 1 ASSIGNMENT: ...................................................................................................... 21
CHAPTER 2: SERVICE DEPARTMENT METRICS ........................................................... 22
Overview ....................................................................................................................................... 22
Individual Metrics ......................................................................................................................... 23
Service Advisor Measurements ...................................................................................................................... 24
Technician Measurements .............................................................................................................................. 25
Departmental Metrics ................................................................................................................... 27
Profit & Loss Metrics .................................................................................................................... 32
CHAPTER 2 ASSIGNMENT: ...................................................................................................... 34
CHAPTER 3: SERVICE DEPARTMENT OPERATIONS .................................................... 35
Service Department Layout .......................................................................................................... 35
Work Scheduling Process .............................................................................................................. 35
Workload Assignments ................................................................................................................. 36
Typical Duties of Technicians ....................................................................................................... 37
Scheduling Considerations ............................................................................................................ 38
Opportunities for Sales Departments ............................................................................................ 40
Service Technician Levels ............................................................................................................. 41
Service Technician Certifications .................................................................................................. 42
Other Service Department Roles ................................................................................................... 43
BUSI 474: Fixed Operations 3
Performance Measurements ......................................................................................................... 45
Staffing in the Service Department ............................................................................................... 46
Compensation in the Service Department ..................................................................................... 47
Future Trends ............................................................................................................................... 49
CHAPTER 3 ASSIGNMENT: ...................................................................................................... 51
CHAPTER 4: PARTS METRICS .......................................................................................... 52
Overview ....................................................................................................................................... 52
Department Profitability ............................................................................................................... 52
Effectiveness of Fulfilling Repair Orders ...................................................................................... 54
Efficiency of Maintaining Inventory Levels .................................................................................. 55
Accuracy of Inventory Levels ........................................................................................................ 56
CHAPTER 4 ASSIGNMENT: ...................................................................................................... 58
CHAPTER 5: PARTS OPERATIONS ................................................................................... 59
Overview ....................................................................................................................................... 59
Supply Chain Logistics .................................................................................................................. 60
Phase In / Phase Out ..................................................................................................................... 63
Service Pricing Guide (SPG) ......................................................................................................... 64
Staffing in the Parts Department .................................................................................................. 66
CHAPTER 5 ASSIGNMENT: ...................................................................................................... 70
CHAPTER 6: COLLISION CENTER ................................................................................... 71
Overview ....................................................................................................................................... 71
Work Flow Process ....................................................................................................................... 71
Operations Considerations ............................................................................................................ 73
Staffing Considerations / Job Functions ....................................................................................... 74
Performance Metrics ..................................................................................................................... 75
Relationships with Insurance Companies ..................................................................................... 75
CHAPTER 6 ASSIGNMENT: ...................................................................................................... 77
CHAPTER 7: SUPPORT DEPARTMENT RELATIONSHIPS ............................................. 78
Overview ....................................................................................................................................... 78
Parts and Service ........................................................................................................................... 78
Parts and Collision ........................................................................................................................ 80
Service and Pre-Owned Sales ........................................................................................................ 80
Service and Loaner Fleet ............................................................................................................... 81
BUSI 474: Fixed Operations 4
Service and Business Development Center (BDC) ........................................................................ 82
Fixed Operations and Accounting Department ............................................................................ 83
Fixed Operations and Finance Department .................................................................................. 84
CHAPTER 7 ASSIGNMENT: ...................................................................................................... 86
APPENDIX: DEALERSHIP LAYOUT EXAMPLE .............................................................. 87
NADA DEALERSHIP MANAGEMENT GUIDES ............................................................... 88
FIXED OPERATIONS ......................................................................................................... 88
BUSI 474: Fixed Operations 5
PROLOGUE
In this handbook, the fundamental principles of running fixed operations within an
American franchised dealership are discussed to provide a foundation for Liberty University
students taking the Fixed Operations course in the Automotive Dealership Management program.
The content in this handbook are taken from recorded video sessions during the spring semester
2018 when various management employees and executives of the Hendrick Automotive Group
spoke in the residential class of this course. The information contained in this handbook is
deemed to be the mutual intellectual property of Liberty University and Hendrick Automotive
Group. Students are expected to expand their knowledge of the topics covered in this handbook
through their research conducted online.
The handbook is divided into seven (7) chapters related to fixed operations: (1) an
overview of fixed operations, (2) Service Department operations, (3) Service Department
metrics, (4) Parts Department operations, (5) Parts Department metrics, (6) Collision Centers,
and (7) support department relationships. These chapters coincide with the 8-week format for the
online program whereas the 16-week format for the residential program will still align with the
same order of discussion only over a longer time period.
This handbook is not intended to provide all information needed to successfully complete
the assignments in BUSI 474. Students will need to conduct research on the Internet to augment
the content of this handbook. Good websites to use are nada.org and coxautoinc.com. If you are
an employee of an automotive dealership, you might have access through your dealership to
NADA resources (see a listing of suggested Dealership Management Guides in the Appendix of
this Handbook).
BUSI 474: Fixed Operations 6
CHAPTER 1: FIXED OPERATIONS
OVERVIEW
In an American automotive franchised dealership, there are three primary departments:
variable operations, fixed operations, and administrative operations. The variable operations
consist of sales, both new vehicle and pre-owned (used) sales, and finance & insurance (or
financial services). Fixed operations consist of service, parts, and collision centers.
Administrative operations consist of the headquarters group and includes accounting, finance,
and other support departments for the products and services provided by the dealership.
The origins of the terms “variable” and “fixed” are multiple but the consensus of thought
is from the customer perspective. When customers purchase their next vehicle is dependent upon
many factors and varies by customers as to the time spans between purchases. However, most
adult citizens of the United States own a vehicle and that vehicle needs to be maintained for
long-term protection of the investment and sometimes repaired when things go wrong. These
events related to maintenance are considered fixed in terms of time periods between visits to the
dealership. While all dealerships desire robust variable sales operations, the key to a profitable
and thus successful dealership depends often upon robust and steady fixed service operations,
and by extension parts operations.
In this handbook, the topic will be directed to running a successful fixed operations
consisting of Service, Parts, and Collision Centers. Unlike Variable Operations where consumers
will make a vehicle purchase a few times in a lifetime, all automotive owners need to keep their
vehicles maintained on a regular schedule to protect the investment they made when they did
purchase the vehicle. The primary reason behind this phenomenon is that mechanical vehicles
age and wear out. The need to maintain one’s vehicle is the driving force that can keep
dealerships open for business even in difficult economic times when purchasing a new vehicle is
not feasible for consumers.
In fact, the proper way to look at the fixed operations of a dealership is that those
departments pay the bills and the variable operations provides the extra income to achieve
maximum profitability. The two most profitable departments in a dealership are Service and
Parts. A successful dealership is when 100% of the dealership’s fixed costs of running the
BUSI 474: Fixed Operations 7
business are paid by the Fixed Operations (Service & Parts) freeing the Variable Operations to
stay in business even if sales are off (e.g. recession, storms, bad weather, etc.) and that keeps
administrative and variable employees from being laid off and benefits can continue to be paid.
SERVICE DEPARTMENT
Overview
Vehicles require maintenance on a regular basis in order to perform as designed. Vehicle
owners have choices of where to take their vehicles for service. Many Manufacturers today have
service programs built into the first 5,000-mile service appointments whereby the customer does
not pay for the parts and labor to change the oil, top off fluid levels, adjust tire pressure, etc. The
purpose of this Manufacturer-sponsored program is to establish a habit of customers taking their
vehicles to the dealership for service rather than using other service shops. For some vehicle
owners, only “genuine” parts made by the Manufacturer and service from Manufacturer-certified
technicians are acceptable. For Manufacturer warranty repairs, only a franchised dealership is
authorized to complete those repairs.
Alternative choices to dealership service departments are independent shops. The primary
advantage offered by dealership service departments is having Manufacturer-certified
technicians working on the vehicles using Manufacturer-certified parts. In pricing service, there
is little difference between dealerships and independent shops. The primary advantage of
independent shops, especially among name brand chain shops, is having more locations closer to
where customers live than the dealership locations, which tend to congregate in high-traffic
locations within a community. In addition, independent shops may be open at hours that are
more convenient to vehicle owners than dealership locations. Some independent shops specialize
in more routine jobs that are required more often (e.g., oil changes, lube jobs, tire rotations, and
even wheel alignments). These independent service shops often would prefer more difficult
repairs to be performed by someone else so the independent shop can handle high-volume, low
time commitment services with technicians with lower certifications and thus lower hourly
wages. Another function provided by all service locations is the state vehicle inspection where
required. To compete, some dealerships offer free state inspections for their customers who
purchase a vehicle from the dealership as an incentive to remain loyal to the dealership service
department.
BUSI 474: Fixed Operations 8
The Service Department typically is the second most profitable department in a
dealership with the Parts Department the most profitable. The reason that these two departments
are numbers 1 and 2 is the amount of business they do in any time period. On average, a
dealership may sell 300-400 vehicles per month but service 3,000-4,000 vehicles per month. The
reason that Parts is more profitable than Service is that there are lower labor costs involved in the
Parts Department and the number of parts sold is dependent upon the amount of service
performed.
Key drivers for determining success in primarily Service Departments of dealerships are
as follows:
• Mission Statement: “Are we easy to do business with?”
§ Do we handle incoming phone calls quickly and complete them in a timely way?
§ Ease of making an appointment / availability of appointments when desired?
§ Alternative transportation while the owner’s vehicle is being repaired?
§ Directional signage on the dealership lot that is easy to follow?
§ Warm and friendly greeting in person or on the telephone?
§ Do we listen with empathy and properly document primary concerns?
§ Are we consistent in providing customers with status updates?
§ Do we have sufficient Shop capacity to meet demand?
§ Are our resources and processes efficient to maintain sufficient throughput?
Other considerations that a Fixed Operations Manager should consider in terms of the
status of the operations are as follows:
o Units in Operation (UIO): How many vehicles are in a given market area? A market
area is determined by the radius of driving time usually. How far are vehicle owners
willing to drive for a service appointment? Where UIO is high, the dealerships can
feel comfortable that their fixed operations business should be steady and potentially
profitable.
o Volume of Customer Pay (C-Pay) Repair Orders (ROs) vs. Warranty ROs. While
Warranty work is important and can contribute to the overall financial health of the
dealership’s fixed operations, warranty work can be irregular and not dependable in
terms of meeting financial goals. C-Pay is the backbone of Fixed Ops’ revenue and
BUSI 474: Fixed Operations 9
profits in a dealership, and the successful manager is one who builds a solid base of
satisfied customers who return regularly for their routine maintenance.
o One successful method for building a loyal customer base is to include a tour of the
Service and Parts departments when customers are purchasing a new or pre-owned
vehicle from the dealership. The customer should meet the Service Manager and the
process for bringing in the vehicle for service should be explained. This process
provides the opportunity for the customer to begin a comfortable relationship with the
dealership’s Service Department and potentially prevent customers from going to
other shops for their vehicle service needs.
o Remember that Fixed Operations is built on a Needs basis vs. an Emotional basis
often associated with Variable Operations decisions. It is much like an upcoming
dental appointment. How many consumers say, “I can’t wait to go sit in a dealership
to have my car worked on and pay money for it.”?
Customer Satisfaction is the #1 goal to retain customer loyalty hopefully for the lifetime
of the original customer and then extended to other family members for generations to come (the
Circle of Ownership). In the automotive industry, customer retention for the dealership during
the warranty period of a new vehicle that has been purchased is 60%, but after the warranty
period end, the loyalty drops into the teens.
Tools of retention used by Fixed Ops is low-cost oil changes and selling tires. In the past,
dealerships did not care much about tire sales because of the low profit margins. However, the
National Automobile Dealership Association (NADA) statistics show that 85% of customers will
buy tires from where they are first told they need tires and 75% of customers have their vehicles
serviced where they buy their tires. Eighty percent of customers who have their vehicles serviced
at a dealership will purchase their vehicles from the same dealership that services their vehicle.
This supports the need to sell low-profit items just to keep customers loyal to the dealership vs.
going to independent service shops.
Employees
Two support roles in the Service Department are Service Managers and Service Advisors.
Service Managers typically were technicians at one time and chose to enter into a management
role. Their primary functions are to ensure that technicians are productive and developing their
BUSI 474: Fixed Operations 10
skills to add value to the dealership’s Service Department. In addition, Service Managers
administer the workflow with the Parts Department. Service Advisors are the customer contact
representatives who ensure that the service workflow is conducted effectively and efficiently and
who serve as the point of contact with the customer informing him or her of the progress being
made on the vehicle in the service bay and of any discoveries made that require customer
approval to proceed with the job. Unlike Service Managers, Service Advisors usually were not
technicians in the past but have great people skills and communication skills. Technicians rarely
talk with the customer but instead with the Service Advisor who communicates directly with the
customer. Though Service Advisors typically were not technicians before, they still need to
acquire enough knowledge about how vehicles function to be able to accurately inform the
customer of any needed repairs. Often new Service Advisors will be assigned to various
technicians to learn the basics the Service Advisor will need to be effective in communicating
with customers.
Service Department Process
The typical service process is as follows. The Service Advisor creates a repair order with
what the customer said were the symptoms and complaints. One of the Level A technicians will
connect the vehicle to a diagnostic computer and verify the stated condition of the vehicle as well
as look for any unsuspected issues. The Level A technician will assign the vehicle to a technician
in a bay within the shop. The technician will communicate with the Service Advisor who will
communicate with the customer via phone, email, text, or visit within the customer lounge. At
some dealerships, if the customer agrees to wait longer, an employee or 3
rd
party vendor will
wash and vacuum the car before the vehicle is delivered to the Service Advisor. After the work
has been completed, the repair order will be given by the technician to the Service Advisor to
complete the financial invoicing and payment. In larger dealership service departments,
invoicing and payments are handled by a cashier vs. the Service Manager. The employee
responsible for performing the invoicing tasks will ensure that all entries are correct and
complete before having the customer pay for the work order and receiving the keys to the
vehicle.
During the repair process, old parts will be removed and replaced with new parts. In the
past, parts like alternators or transmissions would have been repaired by the local Service
BUSI 474: Fixed Operations 11
Department technician before being reinstalled into the vehicle. However, various factors have
determined that simply replacing the old part with a new or Manufacturer-reconditioned part is a
better solution. Most Manufacturers have exchange programs with dealerships for new or
reconditioned parts.
Technicians
These determining factors for replacing vs. repairing parts include:
(a) The cost of labor devoted to repairing the part and not being available for the next
service repair order,
(b) The liability of the reconditioned part not failing in the future being on the dealership
and the technician vs. the Manufacturer that supplied the replacement part,
(c) The limited number of technicians with the requisite skills to repair major parts, and
(d) The faster turnaround speed of putting the vehicle owner back on the road.
In the 1970s, technicians were specialized, and it could take up to five technicians to
work on a single car. That was an inefficient use of labor resources. Today, technology has aided
in the diagnosis of the vehicle, usually performed by a master technician (Level A) who performs
the diagnosis like a triage in the hospital and then sets up the proper level of technician to work
on the areas needed for that car. The Level A technician is fully qualified to work on any repairs
of a vehicle. The Level B technician is qualified to work on major engine repairs. The Level C
technician typically works on shock absorbers, exhaust components, door locks, and other minor
repairs. The Level D technician is an entry level technician responsible for tire services, oil
changes and other express service bay tasks. It is incumbent on the technician to obtain the
training necessary to achieve higher levels of mastery in the craft or even to remain current in
certifications.
Service technicians are actually independent contractors who are paid by the dealership
on a standard hourly door rate that is established for each type of work performed. If the
technician can complete the service job in less time than it is rated, he or she can move on to the
next job and benefit from the extra earning potential. For example, if a brake job is rated at 75
minutes and the technician completes a brake job in 50 minutes, he or she is paid for the 75
BUSI 474: Fixed Operations 12
minutes and can begin another job at its door rate. Conversely, if the technician takes longer to
complete the service job, the pay for that job will remain the same as rated. If the technician
trades speed for accuracy in completing the task, the penalty will be the requirement of that same
technician to fix any mistakes he or she made without additional compensation for doing so.
Another indication of the independent status of service technicians is that the dealership rarely
pays for technician’s tools; the technician does. Technician tool sets can cost in the tens-of-
thousands of dollars if not more.
Dealerships encourage technicians to continue their training and some Manufacturers are
pressuring dealerships to have all technicians at Level A, even though some technicians are
content to remain at a lower level. The higher the level will earn the higher hourly rates for
specific tasks. The balancing act for a dealership is to encourage technicians to advance and thus
be paid more to retain quality technicians without moving them through the training too quickly
that could lead to work performance quality issues. Another concern is that high-level
technicians can be attractive to competitors that lure them away. Most training for technicians
occurs in an online environment because technicians do not want to give up their productive
hours during the day in the dealership while going through the training. Many dealerships enroll
in NADA Academy whereby up to 50 employees can access training resources (e.g., video-based
workshops, dealership guides, etc.) online.
Loaner Vehicle Fleets
In the case of Highline or Exotic brand dealerships, the customers are more demanding in
terms of expectations of when parts should be available and service levels than Domestic or
Import customers. Most Highline dealerships have a loaner car policy mandated by the
Manufacturers to remain a franchised dealership. The Highline Manufacturer usually subsidizes
about half the cost of the loaner car fleet at a dealership while the dealership half of the cost is
apportioned evenly among New Car, Used Car, Service, and Parts departmental budget centers.
Loaner car policies can exist in some Domestic or Import but not as a general rule.
Some Domestic and Import dealerships have a rental car company (often Enterprise)
located on the premises. If the customer purchased the after-market product sold by the
dealership (like Hendrick’s AUTOGUARD protection policy for standard maintenance and
repair situations), the rental vehicle may be available at no additional cost to the customer.
BUSI 474: Fixed Operations 13
Another situation where the customer is not required to pay is if the problem is a drivability
(collision) issue. In those situations, the insurance company pays for the rental car. Exotic
franchised dealerships do not offer loaner vehicles but will pick up and return the vehicle to the
owner using a vehicle carrier to avoid increasing the mileage on the odometer.
For fleet vehicles, the emphasis of the dealership Service Department is to place priority
on getting the fleet vehicles in and out of the service area as quickly as possible. This emphasis is
not just because of the number of specialized vehicles (e.g., vans and trucks) with higher profit
margins on the sales side, but the owners of the vehicles are experiencing financial losses when
the vehicle is out of service. Some dealerships choose not to sell fleet vehicles because of the
costs associated with the specialized needs of the service area (e.g., Truck service bays vs. car
bays with heavier lifts and larger work areas). On the other hand, because many dealerships
avoid fleet sales and service, those dealerships that cater to fleet vehicles can benefit in a
profitable way. In one example in Georgia, a dealership has three of its 27 service bays dedicated
to large fleet trucks. To give priority to technicians working on fleet vehicles, despite existing
service work orders for non-fleet customers, the technicians may work on the fleet vehicles after
normal Service Department hours at a higher wage in order to have the fleet vehicles available
the next day if the parts are available.
PARTS DEPARTMENT
Overview
As stated previously, Parts should be the most profitable department in a dealership. It is
not an automatic result if certain inventory management principles are not followed. On the one
hand, it is important to the Service Department that the required parts for completing the Repair
Order are available so that the technician can finish the RO within the flat-rate time frame and
move on to the next RO. On the other hand, it is not profitable to stock inventory at such a level
that there never is a situation when a part is unavailable. The key to success is stocking the most
often used parts and using the supply logistics chain to provide those rare parts that are needed in
a timely manner for the Service Department.
In the past, Parts Department inventories were narrow but deep in that only standard
replacement parts were kept in inventory with many units in stock to avoid running out of them
BUSI 474: Fixed Operations 14
when needed. If an unusual part was needed in a repair, the customer would be required to wait
until that part could be ordered and delivered, possibly weeks later. In the past 15 years, with
more efficient supply channel operations methods, Parts Department inventories are now wider
in the variety of parts but with fewer units of the parts on the shelves. This is because resupply of
parts can come within one day or even sometimes on the same day to the dealership Parts
Department.
What determines which parts a specific dealership will carry in its inventory are historical
data reports that provide trend analysis to help determine what needs to be stocked in the future.
If a part is not on the shelf, someone in the Parts Department will create an order in the
dealership inventory management system to alert the supply chain system of the need for that
part. One supplier of parts might be the Manufacturer’s Parts Distribution Center (PDC). Many
Manufacturers have regional centers that can have the ordered part to the dealership no later than
the next morning if the order is received by PDC’s afternoon cutoff time (between 2PM and 5PM
depending on the Manufacturer). Even if the order is received after the cutoff time, the part can
be at the dealership the next morning if the dealership is willing to pay an expedite fee of usually
an additional 10% on the unit price of the part.
The larger dealership groups like Hendrick Automotive Group operate their own parts
supply network. At Hendrick, there are two deliveries per day to dealership parts departments
within a local region, one with an 8:30 AM cutoff time for morning deliveries and the other with
a 12:30 PM cutoff time for afternoon deliveries on the same day. In addition to providing parts
within the local area, Hendrick provides parts from its main distribution centers to the region.
For example, Hendrick’s Georgia dealerships receive 92% of their parts from the Charlotte,
North Carolina distribution center. If the Georgia dealership submits a parts order by 5:00 PM,
the part will arrive at the Georgia dealership lot by 5:30 AM the next morning, be checked in by
6:00 AM, and the technician will have the part when he or she arrives at work that day.
Time is money to a technician and waiting for a part means that technician cannot be paid
for a repair order until the missing part arrives, and the order is completed and paid for by the
customer. For some Manufacturer parts distribution centers, it can take 2-4 business days to
deliver the parts. For some Import Manufacturers, if the part is not in the distribution center, it
could take weeks to deliver the part to the dealership from the Manufacturer’s international
BUSI 474: Fixed Operations 15
manufacturing site. Parts ordered from a Manufacturer’s Parts Distribution Center cannot be
returned to the Center for a refund; the dealership is required to absorb the cost and hope to find
a need in the future through its Parts Department outlets.
Process Flow
The typical flow for a Parts Department repair order from the internal dealership Service
Department is that, when the repair order is produced by the Service Advisor, it is printed in both
the Service and the Parts departments simultaneously. Once the Master Technician (Level A)
diagnoses the vehicle and confirms what is needed for the repair order, the technician will update
the repair order into the DMS system. Someone in the Parts Department will pull the items from
the shelves needed for the repair order. The list of parts needed for a service repair order is called
a pick ticket. The Parts Department employee will either deliver the needed parts to a central
location in the service area or place them at the window that opens to the service bays for a
service employee to pick up the order and deliver it to the appropriate service bay.
The assigned service technician or a parts runner will retrieve the parts and perform the
work order tasks on the vehicle. In cases where an unexpected repair is discovered, the
technician will put in a request to the Parts Department to determine if the needed part is in
inventory and the associated price for the part. If the part is in inventory, the technician will have
a parts runner go to the Parts Department window on the service-bay side of the shop and ask
for the part. The parts runner will then deliver the part to the waiting technician. The technician
will add the additional part(s) to the repair order pick ticket. If the needed part is not in
inventory, the parts ordering process will be applied. In some circumstances, the needed part
may be available in a local retail parts store if not available in the dealership network within the
desired timeframe.
Customer Categories
There are three primary customers of the Parts Department: the dealership’s Service
Department, wholesale customers (e.g., independent repair shops that need Manufacturer parts,
collision centers, etc.) and retail customers (e.g., do-it-yourself repair, Manufacturer-branded
apparel purchases, etc.). Wholesale customers provide the least profit to the dealership of the
BUSI 474: Fixed Operations 16
three categories but at least there is some profit to be made vs. having the independent shops go
to another dealership or even directly purchasing from the Manufacturer’s representative.
The best customer of a dealership Parts Department is the back-counter Service
Department. The prices used in Parts Department transactions are almost always at full retail
price. This is one reason the Parts Department is the most profitable Strategic Business Unit
(SBU) in the dealership along with the low labor requirements. Typically, the markup price of
retail parts is 40% over the wholesale cost. On the wholesale side for selling parts to Collision
Centers, there is a 20-36% markup price over wholesale cost. Per governmental regulations, for a
part to be considered Made in the USA, for example, 75%-80% of the components in that part
need to be built in the USA.
Independent mechanic shops typically use retail automotive parts stores for standard parts
in lieu of purchasing parts from dealership Parts Departments, often because of the convenient
delivery services offered by the retail stores. However, when genuine Manufacturer parts are
needed, the independent mechanic shops will order from dealership Parts Departments unless
they are purchasing in bulk quantities directly from a Manufacturer’s Parts Distribution Center.
NAPA and CarQuest are parts competitors to dealership Parts Departments serving primarily
service independent mechanic shops and Collision Centers.
AutoZone and O’Reilly, etc. retail automotive parts stores typically service the end
consumer’s parts needs. To add value for the end consumer, retail automotive parts stores will
offer services like installing the customer’s warrantied battery free in front of the store or replace
windshield wipers, which is a great marketing tool for Do-It-Yourselfers (DIY). The DIY market
today is different than in the past when individuals would replace their own starters, alternators,
etc. Today, most customers of retail automotive parts stores just want accessories that can be
installed easily or oil and filters for the periodic maintenance. Ultimately, the dealership Parts
Department does deal with the retail parts business for the end consumer but rather focuses on
internal Service Department needs and wholesales to other mechanical shops and Collision
Centers. Retail customers for dealership Parts Departments usually are DIY customers who are
loyal to the dealership.
Key Metrics
BUSI 474: Fixed Operations 17
As in all departments of the dealership, daily measurements are taken of key success
indicators to determine the level of performance by the various departments. The Parts
Department is no exception. Key measurements for Parts are: Days’ Supply (orders filled by
supplier), Inventory Level (measured against policy standard levels), Fill Rate (how many
requests from the Service Department that can be filled when requested), Wholesale Parts sales
volume, Inventory Age (shelf life of each part number).
A pair of concepts that will be discussed further in a different chapter is Phase-In and -
Phase-Out. The Phase-In concept is used when it becomes obvious to the Parts Manager that a
specific part number is being special ordered too often and should become part of the standard
inventory at a level that justifies the purchase of units for that part number. The Phase-Out
concept is the opposite and is applied when it becomes obvious that some part numbers are aging
and are not being used often enough to warrant them occupying valuable shelf space. The key
driver in these decisions is the fact that parts are purchased with cash and are not financed. Every
part sitting on the shelf that is not used in a Repair Order or a Wholesale or Retail transaction is
idle cash that can have an adverse effect on the financials of the dealership. Many parts
inventories can be valued in the millions of dollars.
COLLISION CENTER
Overview
The majority of dealerships in the United States do not operate Collision Centers (body
shops). Some reasons for this decision include the unique skill set required of employees who
work in Collision Centers, the low profit margins (average of 10%), the turnaround time to be
paid for the work performed, and the potential liability. At the same time, having a Collision
Center does not promote customer retention to the dealership. Whereas a dealership Service
Department may attract 70% customer loyalty on average, a Collision Center only attracts 30%
customer loyalty to the dealership on average. One positive motivation for a dealership to
operate a Collision Center is the additional source of revenue for the Parts Department.
Part of the reason behind the low customer loyalty numbers is that most customers
depend upon their Insurance company’s recommendations to determine which Collision Center
to use. Just because a dealership’s Collision Center performs the required work well does not
BUSI 474: Fixed Operations 18
result in a strong enough response from the customer to want to change dealerships if the
customer has been going to a different dealership prior to the accident that landed the vehicle in
another dealership’s Collision Center. The key to attracting sufficient business to the Collision
Center is maintaining successful relationships with the insurance companies as a Direct Repair
Point (DRP). To do that, the Collision Center must be competitive in prices (because the
insurance company is paying the bill), high in quality results (no need for a 2
nd
visit on the same
repair) and completing the work in a timely manner (reduces the number of days the insurance
company must pay for a rental car). State Farm Insurance pays an average of $1 million per day
in rental vehicles for its clients.
The service environment at a Collision Center is different than at a dealership Service
Department and thus a different skill set is needed for technicians working at Collision Centers.
For example, Collision Center technicians must know how to weld, a task rarely needed in a
Service Department at a dealership. Collision Center technicians need to be artists to ensure that
seams are aligned and colors match, which takes more precision than is required of a service
technician in a Service Department. The typical job responsibilities at a Collision Center include
Body Technicians for the bodywork, Mechanical Technicians for standard repairs. Body Painters
and Polishers, Prep Employees for interior cleaning, scraping, etc., Estimators, Quality Control
Inspectors, and Detailers.
There is a movement among Manufacturers to install onboard computer technology that
will notify a Manufacturer call center if one of their brand vehicles has been involved in an
accident. Toyota is leading the way in this movement with others potentially to follow. The Call
Center representative will interact with the driver and passengers in the wrecked vehicle to
ensure that they are OK or need medical attention. If the driver and passengers are OK, the
Manufacturer representative will ask if the vehicle is drivable or needs to be towed and if a
police report of the accident is being processed. The representative will then recommend a
Manufacturer-certified Collision Center nearby for the vehicle to be taken.
The certification of the Collision Center by the Manufacturers is determined by past
customer satisfaction indexes. Some Manufacturers use only their franchise certified dealership
locations. Other Manufacturers, like German import brands, may partner with independent
Collision Centers that meet the Manufacturer’s strict standards for quality work at reasonable
BUSI 474: Fixed Operations 19
rates. Another motivation for this new process of determining which Collision Centers are
eligible for performing the repairs is that Manufacturers want original Manufacturer parts to be
installed into their vehicles to protect any remaining warranties or extended service agreements.
By Manufacturers interjecting themselves into the determination of which Collision
Center to use, the insurance companies’ roles in the traditional decision-making process are
being minimized them to fear losing control in the process. In this new process, the insurance
companies become more of secondary players as merely the financial arm and thus reduces the
relationship somewhat between the insurance companies and their customers. Without the factor
of potential loss of relationship, as long as the Manufacturer-certified Collision Centers meet the
same standards as required by the insurance companies, why would the insurance companies
object on behalf of their customers who pay the insurance policy premiums?
Key Metrics
The issue is one of controlling the situation by controlling the cost decisions and
potentially causing a rift between the insurance company and its customers when the Collision
Center recommends one course of action and the insurance company desires a different, usually
more cost-efficient solution. One strategy being adopted by some insurance companies to keep
themselves as primary players in the decision-making process is partnering with dealerships to
purchase replacement vehicles from those dealerships if the owner’s original vehicle is totaled in
value. Some dealerships attempt to satisfy the criteria for Manufacturers by stocking more
Manufacturer original parts and to satisfy insurance companies by working directly with them as
primary participants in the repair process.
A key performance measurement for both insurance companies and vehicle owners is not
having to return a vehicle for a repair the second time. It is as important as the cycle time it takes
to return the damaged vehicle to the owner. Insurance companies use both measurements to
certify Collision Centers approved for the insurance company’s customers. Another key
determinant of satisfaction for customers concerning a Collision Center is how much the Center
keeps the customer informed of the progress on the vehicle with time estimates for completion of
the work. The expectation for most consumers and insurance companies is that the vehicle will
be ready for pick up within 1-2 weeks. Some work is outsourced to 3
rd
Party vendors where the
vendor has the required expertise and can repair the damage quicker and for less cost (e.g., using
BUSI 474: Fixed Operations 20
Dent Doctor to repair hailstorm damage or having the certified Manufacturer dealership Service
Department perform a needed alignment).
This brief overview of the three main departments within a dealership’s fixed operations
sets up the more detailed discussions that will follow in each chapter. Because of the depth of
information, both the Service Department and the Parts Department will be split into two
chapters each – one on general operations processes and the other on measurements (metrics)
that determine what makes a successful department. A separate chapter is devoted to the unique
characteristics of managing a Collision Center, and the final chapter of the 7-chapter handbook
will provide discussion of how the various fixed departments interact with other departments
within the dealership.
BUSI 474: Fixed Operations 21
CHAPTER 1 ASSIGNMENT:
Dynamics of Fixed Operations in An Automotive Dealership
The purpose of this one Discussion Board in the course is to review 3 key concepts related to
Fixed Operations in an Automotive Dealership. For this module/week’s discussion, read Chapter
1 in the assigned reading document for Questions 1 and 2 below. For Question 3, you will need
to research on the Internet to locate the current discussion on the future of automotive
Manufacturer and dealership relationships. The copyright of these sources should be within the
past 2 years to be considered relevant.
1. Describe the unique characteristics of Fixed Operations when compared with Variable
Operations in an automotive dealership. (Chapter 1)
2. When national or regional economic conditions are suffering (e.g., high unemployment,
rising interest rates, high inflation, etc.), what do consumers do with their vehicles in
terms of sales cycle? Do they shorten the cycle or lengthen the time between purchases?
What is the impact of that consumer behavior on the Service and Parts Departments of an
automotive dealership? (Chapter 1)
3. What happens to the consumer behavior in terms of vehicle purchase cycles when the
economy is soaring? Does this scenario affect the number of vehicles serviced by the
automotive dealership Service and Parts departments? How?
4. What is the prediction of the next few years in terms of new vehicle vs. pre-owned
vehicle sales from the Automotive Dealership Industry (NADA)? (External Research)
Submit your thread by 11:59 p.m. (ET) on Thursday of Module/Week 1 and your replies to
2 classmates by 11:59 p.m. (ET) on Monday of Week 1. Your original thread must contain a
minimum of 500 words and include at least 2 reference citations for Question 3. Each reply post
must contain a minimum of 250 words and include at least 1 reference citation for Question 3.
BUSI 474: Fixed Operations 22
CHAPTER 2: SERVICE DEPARTMENT METRICS
Overview
In this chapter, the focus will be on the measurements and control systems needed to
determine how effective, efficient, and profitable a Service Department is performing. As
established already in the Automotive Dealership Management program, a distinctive of the
industry is that measurements are monitored regularly, possibly more than most industries, some
as often as on a daily basis so that dealership managers can stay current in the performance
health of the various departments. The discussion of Service Department Metrics is divided into
three major categories: (a) Individual Metrics, (b) Departmental Metrics, and (c) overall Profit
Metrics.
Metrics are useless numbers by themselves. Key performance metrics should connect with (a)
compensation plans and income, (b) departmental profitability, (c) customer satisfaction, and (d)
employee satisfaction. To be useful, metrics need a form of comparison and associated with a
timeline. Comparisons are made in the following ways: (a) with the same individuals or
departments from current performance compared with past performance, (b) between individuals
and departments both in current performance and compared with past performance, and (c)
against standards or averages established by the dealership or by the industry. Timelines in the
automotive industry typically are (a) Day-to-Day (D2D), (b) Week-to-Week (W2W), (c) Month-
to-Month (M2M), and (d) Year-to-Year (Y2Y). Sometimes comparisons can be measured by
specific selling seasons of the year in the Y2Y timelines.
When used correctly, Metrics form the foundation or basis for dealership managers
performing the following critical actions:
o Prioritization: of what comes first and what comes last. This can relate to the best use
of scarce resources or which corrective actions are more critical and should be taken
first.
o Coaching: Opportunities for employees who need guidance in their work
responsibilities. Identify the specific areas where each employee needs assistance and
don’t waste valuable time where coaching is not needed – provided in the right way at
the right time.
BUSI 474: Fixed Operations 23
o Motivation: Determine what contributes specifically to improve individual or
collective performance.
o Improvement: When should performance be recognized and celebrated?
o Constructive Accountability: is applied when effort and attitude of employees are
greater than the outcomes. This calls for pointing out how the employee can match
the effort and attitude with a better outcome.
o Progressive Discipline: When there is no ownership by the employee of the results
and thus no improvement is being made, the metrics provide specific details of what
needs to be improved in order for the employee to keep his or her job.
Individual Metrics
Each job within the Service Department has different responsibilities and thus must be
measured by different metrics. The jobs to be discussed in this section for individual employee
categories are Service Advisors, Technicians, and Service Managers. All employees can be
measured by the number of Customer-Paid Repair Orders processed per workday cycle because
each employee has a role to play in ensuring that the Service Department is functioning at
optimum capacity to meet customer demand. As stated previously, the numbers would be
compared with a standard number expected under the circumstances.
In addition to the number of Repair Orders completed, the amount of revenue and net
profits generated by those Repair Orders can be measured to determine if the Department is
using its resources wisely with the R.O. work assigned. Revenues are calculated on both overall
sales revenues for the department and divided by Customer-Pay vs. Warranty Repair Orders and
reported as a ratio of Total Sales Revenue divided by Sales Revenue per Repair Order to obtain
average revenue per Repair Order. Another measurement of revenues for Service Advisors is
how much revenue was generated from additional sales beyond the original Repair Order
requirements (e.g., selling new tires for the vehicle). Though tire sales do not generate high profit
margins for the dealership, they contribute to the customer returning to the dealership for their
service needs vs. going to an independent service shop.
BUSI 474: Fixed Operations 24
Service Advisor Measurements
Typically, Service Advisors will write 12-15 R.O.s in a Highline dealership and in the
mid-20s for Imports and Domestic dealerships. The goal for BMW dealerships in terms of
revenue is $700 per Repair Order for combined parts and labor. With the use of synthetic oil,
BMW owners typically come for routine maintenance only 1-2 times per year and they have an
expectation of paying that amount on maintenance service appointments. Because BMW also has
a policy of providing owners with a loaner vehicle while their vehicle is being serviced, the
Service Advisor is measured by the length of time loaner vehicles are off the dealership lot. The
sooner the vehicle is serviced, the sooner the loaner vehicle can be returned.
The method for providing Service Advisors with feedback on their performance is often
called an Advisor Scorecard. Normally, it is distributed on Mondays by the Service Managers as
a review of the previous week’s performance. A daily report is too narrow because an Advisor
can have a particularly bad day in results that is not reflective of the overall performance ratings.
Discussions are held between Service Managers and Advisors to determine what might have
contributed to the results (positive or negative) and what steps can be taken to continue the
positive results and reduce the negative results.
Another critical measurement for Service Advisors is Customer Satisfaction Index (CSI)
scores. Every Manufacturer measures CSI differently. In the past, Manufacturers would use call
centers used to make phone calls to customers who recently were in contact with the dealership’s
Service Department and ask, “How was the customer’s experience?” Over time, customers began
to complain about the telephone calls because often the call center would contact the customer at
dinner time. Today, Manufacturers send emails within 48 hours of the visit to the dealership
asking a maximum of 10 questions with some questions weighted more heavily than others like
overall service experience and the likelihood of the customer recommending the dealership to
others. A good CSI score is rarely achieved by chasing it at the dealership. It is better to build
long-term trust with customers and let the numbers just happen. The Manufacturer picks up the
information of the customer visit from the Dealership Management System (DMS) that the
Manufacturer monitors on a regular basis.
A problem with the email system for receiving CSI surveys is that few customers return
them. Those customers who do return them often are the dissatisfied ones who had a bad
BUSI 474: Fixed Operations 25
experience at the dealership. Rarely do the majority of customers who were basically satisfied
with their service respond. The standard for CSI is achieving a “10” on a 10-point scale. Any
score less than 10 is considered a problem area by the Manufacturer. One method used by the
Service Advisors is to ask the question of the customer when he or she is completing the
paperwork at the end of the service appointment, “Is there anything that we have done that would
prevent you from giving us a 10?” If the customer responds with a “Yes”, the Service Advisor
can continue with “Tell us what we need to fix, and we will do it while we have your vehicle
here with us.” The Service Advisor should also emphasize how important it is for the dealership
to get that response from the Manufacturer without coaching or badgering the customer or
badger for a high score. If the customer complains about badgering, it violates the franchised
dealer agreement with the Manufacturer and penalties could be invoked, usually in the form of
withholding incentive compensation from the Manufacturer to the Dealer.
In some cases, Manufacturers have removed the CSI component from dealership
performance evaluations because of the difficulty in receiving responses from customers. If the
CSI is no longer evaluated for the dealerships and in turn for the Advisors, the Advisors will lose
a portion of their compensation based on performance. In those situations, the Advisor bonus
plan is adjusted with the other measurements so that the same amount of bonus pay is available
but spread across the remaining metrics. The key factor for Service Managers to remember in
situations like these is to communicate with the employees (Service Advisors in this case) the
changes that are coming and how they will be managed by the dealership so that the employees
are not adversely affected by the changes. Trust with the employees is crucial to long-term
relationships and is built and maintained by open communications.
Technician Measurements
The primary measurements for technicians are reflected in their paychecks. The more
they produce, the more they are paid. However, this section reflects the measurements that
Service Managers monitor to ensure that the work assigned to technicians is producing the most
revenues at the least cost for the most profit. The measurements can be a source of feedback to
give to the technicians in an effort to find ways to improve production where feasible. The
primary areas of measurement for Technicians are (a) the number of Flat Rate Hours performed
against the expected hours, (b) the number of Recommendations given per Repair Order, and (c)
BUSI 474: Fixed Operations 26
the Comeback Percentage (number of return visits for the same problem performed by the
technician on a previous Repair Order).
The production of Flat Rate hours is a basic measurement. The Technician cannot control
the number of Repair Orders assigned to him or her by the Dispatcher or what type of orders they
are within the certification level held by the Technician. What the Technician can control is how
long it takes to complete the various components on the Repair Order against the standard Flat
Rate or Warranty Door Rate assigned to the combination of all repairs required under the one
Repair Order. It is understood that some R.O.s may be difficult, and some may go smoothly. The
Flat Rate or Door Rate is based on the average time it should take so it allows for those difficult
situations a Technician may encounter. The measurement for the Technician is the average
completion time of Repair Orders against the standards of Customer-Pay Flat Rates and
Warranty Door Rates.
A technique that was used by one dealership to help Technicians improve their work
process was to video the best Technician in the Service Department on a series of repair tasks
and then video the other Technicians so they could compare what they were doing with the
“model” techniques provided to them. The outcome was that, when the Technicians saw
themselves, they were able to determine what they were doing wrong and began to improve their
techniques. For example, the best technician had his tool box right beside him and one of the
technicians observed that he went back and forth to his toolbox 44 times on a single R.O.
Recommendations per Repair Order measurement is designed to encourage Technicians
to attempt to sell additional services that were not on the original Repair Order. These services
could include repairs that are needed soon anyway (e.g., replace the brake pads, tires, etc.) that
could be completed for the convenience of the customer while the vehicle is in the shop anyway.
Care must be given in how this measurement is applied because it is better for the dealership in
its desire to maintain a long-term loyalty with the customer that pressure is not applied from the
dealership employees to constantly recommend to customers additional services. Eventually, the
customers may take their business to the competition. One way to compensate Technicians and
Service Advisors on Recommendations per Repair Order is to not require the measurement as
part of the basic pay performance criteria but rather to provide bonuses when additional services
are purchased by the customer.
BUSI 474: Fixed Operations 27
The Comeback Percentage measurement is a critical one because it adversely affects
many areas of the dealership. When a vehicle has been serviced or repaired for specific needs,
and the customer departs the dealership assuming the work has been completed successfully only
to discover that something is not right, trust with the dealership has suffered tremendously and
could affect long-term loyalty of the customer to the dealership. It is possible that the actual
repair/service issues were resolved on the initial R.O., but something else was left undone like a
leaking radiator. Now the customer must set another appointment to have the problem fixed
which requires making space on the appointment roster that will not be receiving additional
revenue, the Technician will be working on the vehicle without additional compensation, and
time will be consumed on the schedule where he or she could be earning compensation on
another vehicle. A few ways to reduce the potential of Comebacks would be to not push
Technicians to go faster than their own pace and to have a Quality Control Technician inspect
the more complicated R.O.s to ensure with a second pair of eyes that everything is in order. It is
better to do the job right the first time.
Departmental Metrics
Departmental metrics cover some of the same metric categories as Service Advisors and
Technicians but are viewed from a consolidated level to determine how well the Service
Department as a whole is performing. These similar measurements are Repair Order counts, Flat
Rate production, Recommendations for additional services, and Customer Service Index where
still used by the manufacturers. Additional metrics that will be discussed in this section include
(a) meeting customer demand (effectiveness), (b) customer wait times (efficiency), (c) workforce
performance, (d) meeting pre-owned sales inventory requirements, and (e) customer retention.
The basic question to be answered by a dealership’s Service Department is, “Can we say
‘YES’ to our customers when they need us?” Those customers primarily involve the external
paying customers but can also refer to the internal dealership Sales Department (both New and
Pre-Owned Sales). The following list includes many questions that need to be answered by the
measurements the Service Department monitors.
o Is the service performed correctly the first time?
o Is the service delivered on time?
o Is the price of the service at competitive prices?
BUSI 474: Fixed Operations 28
o How far out are service appointments scheduled?
o How many rings on the appointment line occur before the call is answered?
o How many walk-in customers can be serviced per workday?
o Is the Service Department properly staffed to meet these demands?
Answers to these questions can provide numerous specific metrics to be monitored by the
Service Manager on a regular basis to determine how well the Service Department is
functioning. These performance metrics should be collected daily and evaluated daily, monthly,
quarterly, and annually. Because of the need to be responsive to potential problem areas, the
daily review of the key metrics can alert a Service Manager to those issues that need immediate
resolution. The monthly, quarterly, and annual reviews provide opportunity for more
comparative analysis to determine potential trendlines of issues that exist. Lack of diligence for
Service Managers monitoring the key metrics is not an option in the dynamic, ever-changing,
highly-competitive environment of automotive dealerships.
Specific measurements used to evaluate the Service Department performance include:
• Repair Order Count per day, week, month (by appointment and by walk-ins)
• Dollars earned per Repair Order
• Number of Customer-Pay Repair Orders carried over each day (reasons why: missing
parts, insufficient work hours available, etc.)
• Number of Warranty Repair Orders carried over each day (reasons why)
• Follow-up Report on how the carryover R.O.s were finally completed
The measurement of Customer-Pay Tires Sold was mentioned previously under the
Service Advisor section and the rationale for why this is an important measurement for a
dealership was given. In a typical Service Department, tire sales represent only 20% of all
revenues received with the remaining 80% in repairs. However, tire sales are the #1 reason why
customers leave dealerships and move their servicing and repair needs to independent shops.
Industry data indicate that 80% of consumers buy from the person who tells them they need the
tires and 90% have their maintenance done where they purchased their tires. If a Service
Manager wants to ensure an activity is performed, there needs to be an incentivized metric
associated with the activity even though the dealership may earn $10 profit on a $300 tire after
BUSI 474: Fixed Operations 29
labor costs. The incentive to the Service Advisor might be only $5 per tire, but that usually
provides enough incentive to encourage the act of mentioning the need to the customer.
As stated previously, not all dealerships operate a loaner vehicle fleet. It is expected of all
Highline franchised dealerships and more Import and Domestic dealerships are adding this
convenience for customers who require repairs that will take multiple days to complete vs. an
hour or two routine maintenance service appointment. One BMW dealership maintained a fleet
of 144 vehicles which was second in inventory only to the new vehicles for sale in the dealership
lot. With a 144-vehicle inventory, an average number of 35-40 vehicles are scheduled each day
by the BMW dealership. For dealerships with a loaner fleet, the key metric is keeping the
number of days to a minimum that loaner vehicle is away from the dealership lot. The typical
metric is 3 days or less.
The number of loaner cars in the fleet is determined by the Manufacturer based on the
number of Repair Order throughput per month. The Manufacturer pays the Dealership a 1%
subsidy on every loaner car every month based on its retail value to cover depreciation costs. For
example, a $50,000 vehicle will result in a $500/month subsidy paid to the dealership. For the
BMW dealership with 144 vehicles in inventory, that would result in approximately $72,000 per
month. The dealership needs to ensure that it can produce the service throughput so that the
allocated 144-vehicle fleet is sufficient to meet the customer demand and to avoid pushing out
service appointment dates that would result in customer dissatisfaction and potential adverse
Manufacturer actions.
It is important here to complete the description of what happens in the life of a loaner
vehicle because it is the Service Department that sets up the need to have a loaner fleet. When
loaner vehicles reach a standard mileage point, they are moved into the Pre-Owned sales lot to be
sold. The decision of what should be the standard mileage point can be complicated. For BMW,
if a loaner vehicle is pulled from the fleet before 5,000 miles and put on the Pre-Owned Sales lot,
the dealership can take advantage of all new car Manufacturer incentive programs when sold.
This would mean an incentive payment of $1,000-$3,500 (velocity dollars) based on the model
and would count as new vehicle sold on the Manufacturer’s monthly quota.
If the loaner vehicle is over 5,000 miles, the dealership may qualify for some
Manufacturer incentive programs but not all. For customers, a loaner vehicle that is over the
BUSI 474: Fixed Operations 30
5,000-mile odometer reading will bring a better price on the purchase or lease payments.
However, selling many loaner vehicles above 5,000 miles will have a negative impact on new
car sales quotas. On average, it takes approximately 2 months in the loaner fleet before hitting
the 5,000-mile mark (10-15% of the fleet reach the 5,000-mile mark monthly). On the other
hand, the longer the vehicle is in the fleet, the more depreciation the Dealership receives from the
Manufacturer with the monthly 1% subsidy. The “sweet spot” for when to remove loaner
vehicles from the fleet and place on the Pre-Owned Sales lot is 5-7 months will provide
sufficient depreciation subsidies and still maintain low mileage to attract a profitable sale from
customers.
For those dealerships that are not compensated by the Manufacturer for maintaining a
loaner vehicle fleet, the same measurement applies – complete the Repair Order quickly to
minimize the number of days the loaner vehicle is off the dealership lot. Typically, a dealership
that is not compensated by the Manufacturer will use a rental car company that is co-located on
the dealership lot. The dealership can elect to have the customers pay for the rental vehicle or
have the dealership pay for it as a benefit to loyal customers. Either way, both parties want to
reduce the costs of the rental vehicle. One dealership was using Enterprise Rental Car as its
loaner fleet agent and paid the bill for its customers. When the dealership was able to improve its
service productivity such that the average number of days the loaner vehicles were away from
the dealership lot dropped from 3.7 days to 2.9 days, the annual loaner-fleet budget went from
$94,000 per year to $11,000 per year by trimming just 0.8 days on average.
As stated previously, it is important to measure the satisfaction of both customers and
employees to determine long-term relationships with both parties. It was also stated that
Manufacturers are beginning to abandon traditional Customer Satisfaction Index surveys due to
low response rates from customers answering emails and disliking the interruption of their lives
with telephone surveys. The satisfaction of employees is measured by conducting Employee
Satisfaction Index surveys in periodic one-on-one interviews during the workday. The benefit of
conducting these interviews is that the response rate is high, and the information should be
accurate and useful if the Service Managers have created an environment conducive to openness
and trust among employees. When a collection of responses indicates a common issue that needs
BUSI 474: Fixed Operations 31
to be addressed, the Service Manager has the ability to respond with a solution in a timely
manner.
The replacement method for measuring Customer Satisfaction is to determine the
Retention Percentage in the local market. Rather than ask customers questions about what they
feel or think, retention metrics measure customers’ actual behavior in terms of loyal actions. Do
they return to the same dealership for service needs over an extended time period? For example,
the Primary Market Area (PMA) for a dealership may have 36,000 owners of a particular brand.
The Manufacturer of that brand would know this through the collective Dealership Management
Systems (DMS) of all the franchised dealership locations within the radius of the PMA. If a
dealership had 18,000 of those owners as active customers over 18 months, that would equal a
50% Retention Factor. This is a better metric because it eliminates the pressure from the
dealership employees on the customer to rate the dealership and thus avoids the ire of the
Manufacturer for pressuring the customer.
In addition to rating the active customer owners who frequent the dealership, the number
of customers who were active and now are inactive is measured to see which dealerships
customers are leaving for other service shops (independent shops and maybe other branded
dealerships). Another metric is for lost customers who have left one dealership and begun having
their service needs met by a different franchised dealership of the same brand. For customers
who move out of the PSA, the Manufacturer establishes them as transient customers and
reassigns those customers to the PSA where they relocated. Transient customers are not counted
against the dealership’s Retention Percentage measurement.
The final category for Departmental Metrics involves the relationship between the
Service Department and the Sales Departments – both New and Pre-Owned Sales. The
responsibilities of the Service Department for New Vehicle Sales are to inspect the new vehicles
when they arrive on the dealership lot from the Manufacturer to ensure there are no mechanical
issues and to prepare sold new vehicles for the owners to drive off the lot after the sale. The
responsibilities of the Service Department for Pre-Owned Sales are to diagnose any mechanical
issues with the vehicle and provide that information to the Pre-Owned Sales Manager to make a
determination on whether the vehicle will be sold at retail by the dealership or sold at wholesale
to another dealership or at auction. In addition, the Service Department will need to perform the
BUSI 474: Fixed Operations 32
repairs and maintenance required to bring the pre-owned vehicle up to full working order so that
it can be sold soon for a profit if the Pre-Owned Sales Manager determines to sell the vehicle at
retail by the dealership.
The goal for the dealership is to sell 85% of all pre-owned vehicle inventory within the
first 21 days that they are acquired by the dealership to take advantage of the “sweet spot” of
profitability. In the Hendrick Automotive Group, there is a policy that all pre-owned vehicle
inventory must be sold within 60 days or eliminated somehow from the inventory. The problem
is that part of the 21-day “sweet spot” includes the time it takes for the Service Department to
prepare the vehicle for sale. A typical metric for the Service Department is to have the vehicle
ready for sale within 3 days. This leaves 18 days to sell the vehicle for maximum profitability
because pre-owned vehicles depreciate in value rapidly unlike new vehicles.
The activities involved in reconditioning a pre-owned vehicle for sale include the
diagnostic inspection, cleaning the vehicle, and performing the necessary repairs. A Repair Order
is written that details the cumulative Flat Rate components that need to be completed. Rather
than deal with the whole Repair Order completion time, deadlines are established with each
component so that Service Managers can track the progress of each component and determine
where delays are occurring. Because reconditioning pre-owned vehicles from the Sales
Department adds resource pressure on the Service Department, a good relationship between
Sales and Service involves discussion and agreements on whether or not it makes good business
sense to take the vehicle into the dealership’s inventory. Usually that discussion takes place on a
daily basis in a 10:00 AM meeting going over the inventory status. Sometimes the decision out
of that meeting may be that it is going to be sold Wholesale vs. Retail.
Profit & Loss Metrics
In addition to tracking revenue metrics that indicate the effectiveness of the Service
Department operations to remain a viable entity within the dealership, tracking profitability is an
indication of efficiency, how well the operations can economize on costs of running the
operations. Profitability for a Service Department is primarily measured at the operational level,
the Variable Costs. The dealership’s “bottom line” of Net Profit includes the Fixed Costs of
running the dealership if a single vehicle is not sold or serviced during the year – the overhead
BUSI 474: Fixed Operations 33
costs. While the Service Department does contribute to the overhead costs, the Service Managers
typically have little or no authority to make decisions that directly affect Fixed Costs.
Inside of the overall Service Department Variable Cost measurements are the sub-
department Variable Cost measurements before aggregating them to the entire Service
Department. In this way, service managers can detect if problems exist in specific areas of the
operations. For example, labor costs are divided between Customer-Pay Repair Orders and
Warranty Repair Orders. Parts used in Repair Orders are measured in the Parts Department
section of the financial reports. Consumable supplies like oil and grease are accounted for
separately. These financial reports are generated monthly vs. annually so that managers can
make adjustments to their operations proactively rather than waiting for the end of the fiscal
year.
BUSI 474: Fixed Operations 34
CHAPTER 2 ASSIGNMENT:
Service Metrics
To determine the date that each report is due, refer to the Course Chart in Blackboard. The report
is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover each topic
but not less than 500 words. You will use your class notes, any materials provided by the
instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how a successful Service Department within an automotive
dealership is measured by answering the following questions based on what was learned from the
textbook and other research:
1. Describe the three (3) key areas of measurements produced daily in reports to the
management team to determine how successful the previous day’s operations were in
the dealership Service Department. Be specific in your examples of the following:
a. Individual Metrics
b. Departmental Metrics
c. Profit & Loss Metrics
2. What are some standards of measurements that were mentioned in the textbook or
outside research that would differentiate a weak, average, or strong service
department performance?
BUSI 474: Fixed Operations 35
CHAPTER 3: SERVICE DEPARTMENT OPERATIONS
Service Operations can be summarized with the “3 C’s of Service” model: Complaint
given by the Customer, Cause identified from the Technician’s diagnosis, and the Cure – the
action taken by the technician to resolve the Complaint and the Cause. This section will focus the
discussion on how the Service Department manages these three steps at a dealership.
Service Department Layout
Prescribed layout of the dealership’s various departments is often dictated by the
Manufacturer and will vary among different brands based on perceived brand image the
Manufacturer is attempting to achieve (e.g., are Service Advisors standing at a podium or sitting
at a desk?). Local dealerships may have some input to the final layout based on space limitations,
etc. However, the Manufacturer has final approval over how its franchised dealerships will be
laid out. If the local Dealership does not comply, it risks being cut off by the Manufacturer from
inventory supply of new vehicles to sell.
Considerations in how to set up the Service Department layout is determined by natural
points of ingress and egress of vehicles being serviced and based on the constraints of acreage on
the dealership property. Service bays usually are angled for easier ingress and egress movement
of the vehicles. The highest-paid technicians are stationed closest to the service entrance for least
amount of travel time in an attempt to be efficient. The oil supply is nearby the service bays
where oil changes occur for the same purpose of effectiveness and efficiency. The goal will be
made to get the most service bays in the square footage while remaining safe with the vehicles.
Even the placement of the Parts Department back window is designed to take advantage of least
steps required to position the parts at the service bay. Some dealerships use traffic lights within
the service bay areas to control traffic flow. (See the example of a Dealership layout in the
Appendix of this textbook.)
Work Scheduling Process
Assigning the Repair Order work that needs to be achieved each workday in the
dealership’s Service Department is a function of multiple considerations: (a) the capacity of the
Service Bay, (b) the number of skilled technicians by levels of certification and experience, and
BUSI 474: Fixed Operations 36
(c) the demand from the customer base. For the capacity of the Service Bays, the Service
Manager needs to know how many service stalls there are with lifts and without lifts. Some
service requirements may not require that the vehicle be on a lift like state vehicle inspections.
Part of the decision for determining the Service Bay capacity is what is called “Overload the
Shop”, which is similar to airlines overbooking flights based on historical data. The Service
Department wants to have a shop staffed so that it never has to say “No” to a service request,
however, however, a certain percentage of customers may not show up for their appointments.
The gaps created by the “no shows” can be filled with walk-in customers but the Service
Department cannot always plan on walk-ins being available at a given time. Therefore, use the
“overload” method based on historical data, especially during traditional slow periods.
Routine Maintenance work can be handled by appointment or walk-ins; however, Repairs
need to be by appointment only because of the hours and complexity required for repairs
performed by the higher-level certified technicians. The problem arises when a customer brings
in his or her vehicle for routine maintenance, but when the diagnostics are run on the vehicle, it
is discovered that a more serious problem exists that will require a major repair. It is at this point
that the decision needs to be made by the customer with the Service Department’s
recommendation on what to do – whether to go ahead and complete the repair or postpone it. If
the condition is a safety or drivability issue, chances are that it will need to be repaired before
being on the road again. Unless there is room on the appointment schedule, the repair may take
days before it can be scheduled requiring the customer to obtain alternative transportation. If the
repair is not critical as in the brake pads will need to be replaced in the next 1,000 miles, the
customer may decline the additional service that is needed. This situation will warrant a follow
up call later to remind the customer of the need to change out the brakes.
Workload Assignments
What considerations should go into how many technicians a dealership should hire based
on the capacity of the Service Bay area? For an example, a dealership with 26 current technicians
on payroll might have 28 service bay stalls. If the dealership wanted to expand the Service Bay
area to 43 service stalls to meet increased customer demand, how many technicians should be
hired? What should be considered? The first rule is to have a service bay for each technician – no
idle bays (effectiveness). Should the dealership hire 43 technicians for the 43 service bays? The
BUSI 474: Fixed Operations 37
answer would be “No for now, but plan for growth.” The forecasted shift in demand would
justify 35 technicians, and addition of 9 technicians over the current staff. Then, over time,
additional technicians could be hired as demand increases to justify the expense. The idle service
bays could be used to park vehicles waiting for parts so the technician could use another bay for
servicing a second vehicle and stay productive.
The Service Manager will determine the number of service bays that will be in operation
by service category (e.g., oil changes, tire service, minor maintenance work, and major repair
work) based on the number of Tier 1-4 technicians on the work schedule for the day. This will
effort will result in a total number of rate hours that would reach the capacity for the day’s
Repair Orders. A rate hour is the amount of time designated by the Manufacturer to complete
each sub-task involved with any part of servicing and repairing a vehicle. The difficult part of
calculating the rate-hour capacity for the day is the unknown factor. Some jobs take longer than
the prescribed rate hour and some take less. Much depends upon the abilities of each individual
technician and some of the uncertainty could result from unforeseen problems encountered with
a particular vehicle. The Service Manager will use his or her experience to balance the time to
the best of his or her ability.
Typical Duties of Technicians
It is helpful at this point to mention what a typical day in the life of a technician might
look like. After arriving for his or her work shift, the technician will change from personal
wardrobe to a uniform usually provided by the dealership. The technician then retrieves the first
repair order of the day, obtains the key to the car based on the tag number assigned by the
Dispatcher or Service Advisor. The car may already be in the technician’s designated service bay
that was delivered by a Porter or the technician will need to locate the vehicle in the parking lot.
The parts needed for the Repair Order should be sitting in a container in the service bay that was
delivered by a “runner” from the Parts Department. The technician will retrieve his or her tool
box (sometimes provided by the dealership because of the high cost for tools that some
technicians cannot afford – potentially over $100,000). Finally, the technician can begin work on
the Repair Order.
When the potential for additional service is detected, as in the previous example of brake
pads needing to be replaced in the next 1,000 miles, the technician can inform the Service
BUSI 474: Fixed Operations 38
Advisor electronically or in person so that the Advisor can speak with the customer about
whether or not the customer wants to perform the repair now or later. After the technician
completes the repair order, he or she might take the vehicle on a test drive, if necessary, to make
sure the car is functioning properly. After the test drive, the technician may drop the vehicle off
at the car wash (depending on dealership policy) and close out the Repair Order. A Porter will
deliver the washed vehicle to a parking spot on the dealership lot and bring the key to the Service
Advisor for completion of the Repair Order for the customer. The technician’s labor time for a
Repair Order begins when he or she picks up the R.O. and ends when the Service Advisor has
received the final coding and comments from the Technician on the R.O. Most entry-level
technicians will handle 6-10 cars per day; mid-level techs may average 3-6 cars per day; a master
tech may only work on one car per day and teaching other techs.
Scheduling Considerations
One method of becoming more accurate in determining the rate-hour daily capacity is to
count carryover cars after the service shop closes and figuring out why that happened – where
did we overbook? What can cause carry overs:
o Parts were not available
o Unexpected discoveries beyond what was initially reported
o Technicians taking extra time and care to fix the problem right the first time so as
to avoid returns (bring backs) by the customer. These situations cause customer
loyalty issues, more confusion in the scheduling process, and the return work is
not compensated because the customer will not be paying for the fix.
o Walk-in customers not originally scheduled (In rural areas, customers are more
likely to walk in without an appointment. For Japanese Import brands, the
Manufacturer’s policies result in 50% of the day’s service business. For Domestic
brands, the number averages 30%. With Highline brands, the problem is less
because a higher percentage of those customers book appointments – partly due to
scheduling a loaner vehicle while the owner’s vehicle is being serviced.)
o Customers who arrive late for appointments.
A Service Manager is careful not to overbook the capacity of the Service Department for
the reasons given previously and to be considerate of the effect too much work time pressure
BUSI 474: Fixed Operations 39
may have on the Technicians and even the Service Advisors. While packing in more work can be
profitable in the short term, high employee turnover rates and low morale can cost more in the
long term. Therefore, the Service Manager should provide more capacity than what could be
scheduled for the day.
For specific methods that could be used to schedule better, the restaurant industry can be
used as a model. One common characteristic of the restaurant business is that customers want to
eat their meals about the same time. During those rush hour surges, restaurants often have “Plate-
Out Servers” whose sole task is to take orders just prepared by the kitchen to the tables
regardless of the server who took the order. The order taker checks back at the table as soon as
possible to ensure that the customers received what they ordered and that it was delivered to their
satisfaction.
In an Automotive Service Department application, many dealerships set up Express
Service areas that handle those jobs most needed and require the least expertise on the part of the
technician - oil change services. Often these services do not require an advanced appointment but
have multiple lanes for customers to drive up, wait in the customer lounge while their vehicle is
being serviced, and drive off in a short length of time. If a problem is discovered in the
inspection of the vehicle that goes beyond Express Services, arrangements can be made between
the customer and the Service Advisor for next steps – whether to have the additional repairs
made while the customer continues to wait, arrange to deliver the customer to a destination while
leaving his or her vehicle at the dealership, or set an appointment for the customer to bring the
vehicle back for the needed repairs.
Other methods of managing service capacity with demand during rush times is having
technicians assigned to working on reconditioning pre-owned vehicles for sale called upon to
help with the Express Service bays. Service Managers could extend the shop’s service hours for
those busy day, if necessary, to avoid carryovers. This is the first choice over floating people
from other work if the number of reconditioned cars needed to be placed into the active sales
inventory is high. Reconditioning work could be done overnight rather than use up capacity
during the day.
The best methods to help reduce the number of occasions when rush conditions exist are
to apply good preparation techniques – pull records of who is coming in for the day so less time
BUSI 474: Fixed Operations 40
is needed to set up the work – have parts pulled for standard orders and ready to be installed by
the technicians. Use Software programs that give historical data on what has been the work flow
in the past for given hours of the day, days of the week, weeks of the month, and seasons of the
year. This is helpful with the unexpected walk-in customer traffic.
Routine maintenance work (e.g., oil changes and mileage-interval checkups) are done on
weekends (Saturdays and/or Sundays). Repair work is done only on weekdays (Monday-Friday)
by master technicians. In this way, more express work can be completed, and the service bays
will not be tied up for long time periods. In addition, major repair work may require additional
parts that may not be available on weekends.
Opportunities for Sales Departments
When dealership customers bring their vehicles into the Service Drive for routine
maintenance or repairs, a sales opportunity is created for some of those who purchased their
vehicles from the dealership in the past. Successful dealerships have customer database systems
that connect the Service information on the age and mileage of the vehicle with the Sales deals
that are available at the dealership. These database systems can identify vehicles that are in a
situation where what is owed on the vehicle or what remains on the lease agreement is less than
the market value of the vehicle – a positive equity position. The database system can notify the
New Car Sales Department that the customer is in the dealership Service area waiting for his or
her vehicle’s service appointment to be completed.
A salesperson can be dispatched to the Service Customer Area and discuss the potential
of getting out of the current loan or lease and upgrading to a new vehicle with minimal financial
changes to the customer’s current payments. This effort is most effective when the customer is
facing a significant repair bill on the current vehicle. Proactive dealerships sell 60-100 vehicles
per month from the Service Drive opportunities. The software programs available to dealerships
today can calculate the payoff value of the customer’s current vehicle, determine the customer’s
current credit rating to determine the prime candidates for offering the new vehicle upgrade
purchase deal. If the customer agrees to make the deal, the Repair Order on the current vehicle
will be completed so that the vehicle is ready for resale either to be placed in the dealership’s
pre-owned inventory or sold at wholesale to another dealership or at auction. The only exception
to completing the Repair Order would be if the extent of repairs is substantial enough to warrant
BUSI 474: Fixed Operations 41
a decision to sell the vehicle in “As Is” condition to avoid taking a loss of value on the
transaction.
What happens to the service work if the customer decides to purchase a new vehicle? The
Service Department still gets the RO to get the vehicle ready for resale if the car is going into the
dealership pre-owned inventory.
Service Technician Levels
The previous section involved the high-level dealership system for making service
appointments with customers. In this section, the more specific considerations of which
technician to assign to different Repair Orders is discussed. The typical method for assigning the
work is for the dispatcher to distribute electronic Repair Orders to specific technicians by skill
level of the technician and subsequently by priority. Priority is usually based on the first
available qualified technician.
Though an electronic system is used to automatically match technician skill sets and
priority availability timeslots, a human dispatcher usually will be watching over the electronic
software program to override the assignment if needed. Some Service Department assign work at
a sub-level of specializations within the technicians’ basic skill levels to speed up and improve
the quality of the work on more complex Repair Orders. For example, if two technicians share
the same Master Tech Level (A) but one is better and quicker at engine work and the other is
better and quicker on brakes, each technician would work on his or her specialty if both
components required repair on a single RO. A key success factor for Service Departments is
having technicians well trained in multiple areas to provide for the flexibility that is needed.
The four levels of a Service Technician (mechanic) in descending order are: (1 or A)
Master Technicians are certified in all eight certification tests, (2 or B) Technicians are certified
in most of the tests, and (3 or C) Technicians. A Level 1 Master Technician will perform the
diagnostics on vehicles entering the Service Bay area (an activity called triage similar to a
medical facility) to determine the work that needs to be done and enter the service needs of the
vehicle into the database for the Dispatcher to determine which technician will handle the Repair
Order. In addition, the Master Technician works on major engine repairs with 50% of his or her
work schedule on routine maintenance and the other half on repairs.
BUSI 474: Fixed Operations 42
Level 2 Technicians also can perform diagnostic work and disassemble and assemble
parts. Level 3 Technicians (usually rookies in their first 12 months), perform oil changes, tires,
and basic maintenance work. For the dealership, more gross profit comes from selling lower
technician costs of sales because of the number of Repair Orders that can be completed within a
given time period vs. the more involved ROs that could take up many hours of a technician’s
work day. The balance of decision on what percentage to assign to each Technician level is
keeping profits high enough while having the skills and training base of technicians to handle
any maintenance/repair job that comes to the shop.
Service Technician Certifications
The eight basic certification tests for automotive technicians as issued by the National
Institute for Automotive Service Excellence are:
1. Engine Repair
2. Automatic Transmission
3. Manual Drive Train & Axles
4. Suspension & Steering
5. Brakes
6. Electrical Systems
7. Heating & Air Conditioning
8. Engine Performance
A technician who has completed at least one certification test will wear the ASE Certified
Automobile Technician patch on his or her shirt. A technician who has completed certification
tests 1-7 will wear the ASE Certified Master Automobile Technician patch. Those certified
master technicians who also have completed Certification Test 8 for Engine Performance will
wear the ASE Certified Advanced Level Specialist patch. These technicians are considered to be
specialists with the extra skill set of being able to diagnose the most complex engine
performance problems to include the most sophisticated electronics being added to vehicles these
days. It is important for a Service Manager to know that not every technician desires to be or is
capable of becoming a Master Technician. In managing technicians’ career expectations,
sometimes it is more effective to encourage technicians to be the best at whatever level they are
able to perform. The reason for some technicians to have no desire to become Master
BUSI 474: Fixed Operations 43
Technicians is because they do not want the extra pressure that comes with the added
responsibilities.
The primary upward mobility track for technicians is being mentored by a technician who
is senior to the learning technician. In addition, formal technical training is available through the
Manufacturers while the dealership will train on cultural areas – “how we treat customers around
here”. Technicians consider the time off from their jobs to be trained as a positive investment in
their futures because of the increased compensation potential. Sales personnel, on the other hand,
often consider time away from the job for training purposes as more of a detriment because they
believe the purpose of the training is to fix a problem that they have in their job performance.
Technicians are basically independent entrepreneurs working in the Service Department of the
dealership. In a typical-sized dealership, there will be 5 groups of 8 technicians with one group
leader (Shop Foreman) for each group. The group leader usually is a master technician who is
the “go-to” technician for questions that arise from junior technicians. In large-volume Service
Departments, the span of control for a group leader may be 5-6 technicians in the group.
Other Service Department Roles
Another key job function in the Service Department is that of a Service Advisor. These
individuals could have been technicians in the past but not often because a different skill set is
required for technicians and service advisors. A Technician rarely meets with the customer; that
is the role of the Service Advisor. Therefore, the Service Advisor must have be able to
communicate effectively with customers. While the Service Advisor needs to have some basic
understanding of how vehicles operate mechanically, the requirement to be able to answer all
questions about the mechanics of the vehicle is not necessary, especially with computer-aided
diagnostic equipment available on most recent models. Another skill required of Service
Advisors is time management to ensure that the status of the progress on each vehicle in for
service is known and communicated to the customer. These attributes of a Service Advisor
contribute greatly to the Customer Satisfaction Index (CSI) score either positively or negatively.
In a typical dealership, the Service Department manages the largest employee base of all
other departments. Other job titles not mentioned yet that may exist in the Service Department
are Service Loaner Fleet Administrator, Porter, Greeter, Shuttle Driver, Courtesy Car Wash &
BUSI 474: Fixed Operations 44
Detailer, Service Lane Manager, Dispatcher, Quality Control Inspector, Shop Foreman, and
Warranty Representatives.
In Highline dealerships and even Import or Domestic dealerships, having a loaner car
fleet is a value-added service to attract customers. One Highline dealership used in the Variable
Operations course for financial analysis had a fleet of 144 vehicles that need to be managed by
appointments. A Porter is responsible for moving vehicles around on the dealership lot and will
work for multiple departments to include Sales. Some of these tasks may be outsourced to
companies that specialize in the tasks (e.g., Enterprise Rental Car could have a remote office on
the dealership lot, a mobile car wash company may handle that task, etc.). Instead of hiring
someone to run the shuttle vehicle for customers, the dealership may outsource to ride-sharing
companies like Uber or Lyft.
A Quality Control Inspector would be responsible for the final check of the vehicle after
all maintenance or repair work had been completed to include a test drive, if necessary, to ensure
that the vehicle does not leave the dealership with issues. Warranty Representatives would
specialize in maintenance and repair orders associated with vehicles still under their warranty
coverage.
The Shop Foreman is located in the Service Bay area and oversees the work being done
by a group of technicians, usually 4-5 technicians. This person also informs service management
if there are needs to improve layout of the shop, problems that the Manufacturer needs to be
aware of and/or where there are needs to change service procedures. Shop Foremen are Master
Technicians. Because Technicians have an expiration date on their ability to perform the work
that is very hard (e.g., bending over the car, heavy lifting, broken fingers, etc.), a great place to
move in their career is Shop Foreman so their knowledge can still be applied even if not
physically working all the time.
A Dispatcher (Booker) manages the work flow within the Service Department and
handles up to 300 Repair Orders per day. They assign each RO to the next available technician
who is qualified to handle the estimated work to be done.
BUSI 474: Fixed Operations 45
Performance Measurements
To supervise employees in the Service Department, managers use different methods to
observe performance and to encourage employees in their work environment. One of the
methods is called “Management by Walking Around” (MBWA). When employees see the
manager in their work area, they know that what they are doing in their job performance is
valuable to the organization and that they as individuals are respected. Many dealerships
participate in an Employee Satisfaction Index (ESI) that is similar to a Customer Satisfaction
Index (CSI) in terms of administering the process.
Under an ESI program, managers will meet at least once per quarter and possibly more
often with each employee in the Service Department to determine how satisfied or dissatisfied
that employee is with his or her job and working conditions. If handled properly, these ESI
meetings should not be like going to the Principal’s Office, but rather a friendly two-way
conversation that is respectful of the employee. Questions in the interview should include:
o How are you doing?
o How are we doing?
o How productive is the work environment?
o Are there any obstacles to you successfully performing your assigned job functions?
o Reinforce how much the employee is appreciated.
If the employee suggests changes that would make the work environment more
productive, it behooves the Service Manager to seriously consider making changes to policies
that would accommodate the suggestions. Managers who conduct such interviews are likely to
experience a productive work environment and retain satisfied technicians on the payroll.
Another method that has been used by some Service Managers is called the “10/10
Appointments” whereby the technician is given a notebook and asked to take 10 minutes at
10:00 o’clock in the morning to write down whatever they think about the problems they will be
facing that day. The notes are collected by the Service Manager at the end of the workday and
entered into a database to determine what are common problems being experienced by multiple
employees.
BUSI 474: Fixed Operations 46
Staffing in the Service Department
The demand for high-quality automotive technicians is extremely high and the supply is
typically low and declining as workers choose other career paths. Therefore, it is incumbent on
Service Managers to not only recruit and hire the best talent available but to retain them for the
long term to reduce turnover expense and turmoil. Recruiting and interviewing for Service
Department employees is a non-stop activity. One word of caution to a Service Manager is to
never hire out of desperation or fear because those hires usually are short-term and create more
trouble in the workplace than if the vacancy had been endured until an excellent employee could
be hired. Another consideration for the Service Manager is that a high-quality technician may be
more productive than an average technician and thus result in the need for fewer job vacancies.
Some methods for locating high-quality technicians include the following:
§ Have an internal referral bonus program for your team.
§ Have a consistent presence in any environment where the dealership has been
successful before.
§ Manufacturer specific training facilities.
§ Area community college technical and business programs.
§ College Job Fairs
One of the best methods to recruit technicians is by offering current employees a cash
bonus every time they refer a qualified recruit who is hired and works for the dealership a
minimum number of days. At the Hendrick Automotive Group, if the new recruit remains
employed for 30 days, the referring employee receives a $500 cash bonus; if the new recruit
remains employed for 6 months, the referring employee receives another $500 cash bonus.
To be eligible for the referral, Hendrick employees receive business cards of available
positions being sought by the dealership to include a position number for each vacancy. If a
Hendrick employee identifies a potential recruit, the employee gives that potential recruit one of
the business cards after placing his or her employee ID number on the card for the referral. This
procedure is used for job vacancies where there is an urgent need.
BUSI 474: Fixed Operations 47
Compensation in the Service Department
Compensation within the Service Department varies by job title, job level, seniority, etc.
Each job function is assigned a Job Code that has a pay range associated with it. The Cost-of-
Living Index (COLA) often factors into the amount of pay. The determination by Human
Resources Department as to how much the pay range should be is determined by comparative
pay rates with competitor companies. For example, a Tire Changer at a Target store in South
Carolina who graduated from high school is paid $12 per hour. To stay competitive, the
automotive dealership may establish a pay range for similar work in the South Carolina market at
$12-14/hour. The HR Department has access to market studies that determine the pay range in
given geographic regions based on cost of living and standard job codes in the industry. The
system used by the Hendrick Automotive Group is called Workday.
In terms of additional employee benefits (e.g., health insurance, paid vacation, etc.), there
is no standard approach by dealerships. Junior service technicians may be paid on a salary basis
when they are first hired while they gain skills and ranking, however, the preferable position for
most dealerships, especially for Senior service technicians is to pay based on performance
(incentive-based).
Incentive-based pay is based on a Flat Rate that is published in a Service Pricing Guide
(SPG). The Flat Rate is determined by the costs of labor hours needed to complete the task, the
cost of parts, and the markup for profit to the dealership. For example, assume that a radiator
replacement should be paid for 2 hours. If the Technician is paid at a $20/hour rate, the
technician would be paid $40 to replace a radiator. A technician paid $30/hour would be paid
$60. If the technician can finish the job correctly in one hour vs. two hours, the $20/hour
technician would be paid $40 for that hour, and would be able to move on to another R.O. On the
flip side, if the technician took 3 hours to complete the radiator replacement, he or she still would
be paid $40 and would lose one hour of the day for being compensated on a different R.O.
Technicians do not ask how much they can make in income because they make what they can
produce. Technicians may ask how many hours they can work and how many Repair Orders they
can expect to be assigned in a workday.
Service Pricing Guides are published from various industry sources (e.g., Manufacturers,
Dealertrack, CDK, Mitchell, etc.). Sometimes dealership employees will “ghost call” different
BUSI 474: Fixed Operations 48
independent repair shops to see what they are charging for the various services. Sometimes the
information comes from customers who tell the dealership that they could get a different price
from another shop. Another obvious source of current flat rates is the Internet. Flat rates are
reviewed periodically by the service managers to determine what are fair and competitive prices
that would attract customers to the dealership Service Department vs. the competition.
Some flexibility in pricing happens at the service manager level for loyal customers. The
question becomes “How valuable is the customer’s long-term loyalty to the dealership?” For
example, the Service Manager might offer up to 50% discount on labor and 20% discount on
parts. Otherwise, pricing is based on the age and mileage of the vehicle. For newer vehicles,
owners typically are more to them and thus pricing for service and parts can remain at full retail
whereas, with older vehicles, owners may need offers of discounts to encourage them to come in
for service to extend the life of the vehicle.
Another term that is used for Flat Rate under Warranty work is called the Door Rate. The
rate is established by the Manufacturers; however, dealerships may discount customer-paid door
rates for loyal customers. If dealerships charge less than the Door Rate, the Manufacturer will
pay the discounted rate the dealership charged the customer. The term used for the discounted
rate to the customer is the Effective Door Rate vs. the Warranty Door Rate established by the
Manufacturer. The Manufacturer will audit the franchised dealership’s Service Department every
3-5 years to determine what the dealership has been charging its customers for warranty repair
service. Dealerships can ask for a higher warranty door rate but should be careful in doing so
because it could invite an audit from the Manufacturer.
Whatever the flat rate price is for a specific task, that is what the technician will be paid.
If the technician finishes a job sooner than the time allotted for the tasks, he or she can move on
to the next job to earn more income. On the other hand, if the technician requires more time than
allotted, he or she will be paid the flat rate price for the work and delay the opportunity to begin
the next Repair Order.
Service Advisors are paid on a salary basis typically with bonus incentives based on
achievement of specified goals. For example, there are parameters based on mileage of cars
when tires may need to be replaced or additional services like alignments, brake pads, etc. The
more of these items the Service Advisor sells, the more commission is earned – from 7% to 8%.
BUSI 474: Fixed Operations 49
Tire commissions are lower because of the low profit margins but could net a flat rate of $5 per
tire vs. a commission. Sometimes there are team incentive promotions – percentage of parts sold,
for example. Sometimes a quick start goal is established at the beginning of a month when the
sales cycle is lowest and additional incentive pay is offered along with the overall monthly goal.
o Express Technicians, responsible for oil and tire changes will average $32,000-
$38,000 annually.
o Minor Repairs / Maintenance (B & C Technicians): $45,000-$55,000 per year
o Master Technicians (A): $75,000-$125,000+ per year. Some Master Technician may
be paid $35 per hour plus their flat rate with some achieving 80 hours per week of flat
rate work.
Technicians typically are paid every two weeks at most dealerships. Those dealerships
that have paid employees weekly usually abandon that practice due to the high costs involved
with processing the payroll documentation. Service Advisors are paid monthly.
Future Trends
What does the future hold for customers obtaining service on their vehicles? How can
dealerships economize on labor costs and, at the same time, speed customers on their way? Some
ideas that experts in the industry have given is having Do-It-Yourself service lanes at the
dealership similar to Self-Checkout lanes at the department store. The customer could set up the
appointment online through a dealership web portal using available appointment scheduling
software tools. Then the customer would check-in near the appointment time at a kiosk and be
directed to park the vehicle in a designated space. If a loaner vehicle is part of the contracted
service, the customer would be directed to a specific loaner vehicle with an access code (similar
to (ZipCar Rentals). Of course, the dealership would have on file, the preferred credit card
number and driver’s license information so that the loaner contract could be completed. When
the repair or maintenance work is completed, the customer would be notified to return the loaner
vehicle and pick up his or her personal vehicle. This concept removes most of the administrative
work for the dealership and saves in the number of administrative employees needed to handle
Repair Orders.
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Another recent development in Service Department operations is how the Technician
communicates with the customer on the need for additional repairs that need to be performed on
the customer’s vehicle. Traditionally, the Technician informs the Service Advisor who speaks
with the customer or the Technician might speak directly with the customer. Some customers
need more evidence of the need to add the repairs being recommended and the solution was to
take the customer into the Service Bay area and show him or her the problem areas. This
traditional process requires customers to enter the work area where concerns for the customer’s
safety and liability risks are high. A newer method of communicating with the customer is where
the technician takes a video of the vehicle using a GoPro camera or smartphone on a selfie stick
and points out the parts that are in need of repair and sends it directly to the client or Service
Advisor for review. This new technique also accommodates customers who are not in the
Service Department customer lounge but are remote at the office or at home. The estimate of the
additional repairs can be sent via email to the client.
BUSI 474: Fixed Operations 51
CHAPTER 3 ASSIGNMENT:
Service Operations
To determine the date that each report is due, refer to the Course Chart in Blackboard.
The report is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover
each topic but not less than 500 words. You will use your class notes, any materials provided by
the instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how a Service Department functions within an
automotive dealership by answering the following questions based on what was learned from the
textbook and other research:
1. Describe how a dealership Service Department should be arranged so that maximum
effectiveness and efficiency can be achieved.
2. Describe the employee positions hired to work in a Service Department to include the
different levels of technicians.
3. What determines the correct number of technicians and service advisors to hire?
4. Describe the compensation plan that you would use in your Service Department and
explain your rationale for it.
BUSI 474: Fixed Operations 52
CHAPTER 4: PARTS METRICS
Overview
In the previous chapter, the discussion focused on the operational aspect of the Parts
Department. In this chapter, the focus will be on the key measurements that can be used to
determine the degree of success a dealership’s Parts Department is achieving and to serve as a
means of discovering where problem areas may exist. Some of the measurements in the Parts
Department are similar to measurements discussed in the Service Department and there are
unique measurements associated only with the Parts Department.
The matrix categories include:
• Department profitability
• Effectiveness of fulfilling Repair Orders
• Efficiency of maintaining inventory levels
• Accuracy of inventory levels
Department Profitability
One key measurement for profitability is the contribution of the Parts Department
revenue to the entire dealership’s revenue generation. For example, it is expected that of every
dollar received from Fixed Operations, 65% of that dollar will come from the Parts Department
and the remaining 35% will come from the Service Department. This is considered a ratio of a
healthy financial dealership. In the case of a Highline dealership, the percentages of parts to
labor may be higher because of the cost of parts from Highline manufacturers coupled with the
high expectations of Highline vehicle owners to have genuine OEM parts installed in their
vehicles.
Using the Parts Department Financials Worksheet from Blackboard Reading & Study
link for Module 5, review the following items that are evaluated to determine the profitability of
dealership Parts Departments. The rows that are highlighted in orange are key measurements
evaluated by Parts Department managers. The following definitions are given for some key
acronyms.
BUSI 474: Fixed Operations 53
• P & A: Parts and Accessories
• Customer is primarily the Service Department work on customers’ vehicles
• Body Shop: Collision Center
• Internal: refers to parts going into pre-owned vehicles to make ready for sale
• R.O.: Repair Order
• Warranty R.O.: Warranty work vs. Customer Pay
• Counter Wholesale: parts sold to independent service shops, etc.
• Gross Profit: Sales less Variable Costs paid for the parts
• The first beige set of columns (dollars and percentages) are the average of the Top 4
dealerships within the group. The second beige set of columns is the top dealership.
Compare the dealerships to determine the differences in Gross Profit for each one. Which
ones are the most profitable? Which ones are the least profitable? The best measurements would
be to compare similar brand stores. What seems to be the contributing factors to the differences
between the most and the least profitable? How are Sales vs. Expenses? Are the Salaries
comparable? Are Company Vehicles the problem? Could the differences in local markets be a
contributing factor? A key target to determine which dealerships are doing well and which are
not doing well is the Operating Income. Above 30% is very good; 10%-29% is OK; Below 10%
is a problem area for Parts Department Operating Income.
The age of parts on the shelves can affect the profitability of the Parts Department
because of the potential inability to sell the part the longer it sits on the shelves in inventory. If a
part ages over 6 months without being sold, there is a 20% chance of selling the part eventually,
or better stated, there is an 80% chance the part will not be sold without exercising dire efforts to
sell it. If the part ages over 12 months, there is almost a zero percent chance of selling it.
Fortunately, there are database systems that record “lost sales” (when a part is requested and is
not available in inventory). The system also issues reports on when parts are returned to
inventory so that accurate inventory levels can be achieved. Measuring peak points when sales
begin to decline for specific parts can highlight for the Parts Manager the trigger to Phase Out
those parts. The system also has the ability to allow the Parts Manager to override the parts
ordering recommendations (e.g., not stocking windshield ice scrappers in August).
BUSI 474: Fixed Operations 54
Another consideration and metric in the profitability area is the amount of value in
damaged or missing inventory due to inability to maintain the accuracy of the physical inventory
or even due to theft. Theft, if it happens, occurs most often in the “boutique shop” (clothing,
model cars, etc.) of the Retail Parts Department. Whenever theft occurs with vehicle parts, it is as
a result of a part being borrowed from the Parts Department by a service technician to determine
if it is the right part for the Repair Order but then is not returned to the proper bin in the Parts
Department. The proper method to reduce theft is to keep the parts inventory under secure lock
and accessible only by Parts Department employees, and to sign out any part to a technician on
the Repair Order before it is received by the technician. When the part is returned to inventory, it
is removed from the Repair Order and the technician is cleared from the responsibility for the
missing part. To give perspective, the value of the parts inventory in two BMW dealerships in
the greater Charlotte, North Carolina area equals over $2.5 million.
Effectiveness of Fulfilling Repair Orders
The term used for determining the effectiveness of fulfilling repair orders is Fill Rate,
which is measured as the percentage of the time a part is available in inventory when it is needed
for a Repair Order.
Categories of Inventory include (a) Stock, (b) Non-Stock Manufacturer, (c) Non-Stock,
Non-OEM, (d) Special Order Parts (SOP), and (e) Obsolete Parts. Stock items are those parts
that are used on a regular basis in maintenance and repairs of vehicles (e.g., Gas-Oil-Grease,
Tires, minor Body Repair, etc.). Being efficient with inventory levels of tires, for example,
would mean maintaining lower quantities of tires if the dealership Parts Department had a
contract with a local tire distributor that can deliver tires twice per day. The only reason to stock
tires at the dealership would be to fulfill immediacy needs on the part of customers’ expectations.
If the technician recommends that a customer needs new tires, having them put on while the
customer waits vs. coming back in a few hours is critical. Most of the time, if customers are
required to return at a later date or even time in the day, they probably will not return to the
dealership but will purchase the tires elsewhere. Therefore, the Parts Manager needs to stock the
most popular brand, quality, and sizes of tires and backfill with the deliveries from the tire
distributor as inventory is depleted.
BUSI 474: Fixed Operations 55
Gas, Oil, and Grease (GOG) is one of the most critical inventory items to maintain
current levels because they are involved in almost every Repair Order. The term is somewhat
outdated because modern vehicles do not require grease (lubrication) on parts. Oil is supplied
today in bulk through containers on the Service Department property and distributed through oil
lines that the technician can use to measure out precisely the amount of oil needed in the vehicle
vs. the old method of using oil cans with disposal issues associated with them. With German-
engineered vehicles that use up oil during operating them, technicians often will add oil beyond
the manufacturer’s required levels of 8 quarts. They might top off the vehicle with 8.5 quarts
with the extra oil charged to the Service Department as an expense vs. charged to the customer.
Some dealerships will fill the vehicles being serviced with Gasoline as a courtesy to their
customers to maintain loyalty in the face of competition.
Body Repair parts kept in inventory for the Service Department vs. the Collision Center
are the most common ones needed for more routine repairs (e.g., bumpers, headlights, taillights,
radiators, etc.), those repairs that generally can be completed in the same day. Those parts that
require multiple days for a Collision Center to repair will not be kept in inventory but will be
special ordered when required for a Repair Order from the Collision Center.
Efficiency of Maintaining Inventory Levels
Parts inventory is an indicator of a dealership’s integrity, commitment to customer
service, and discipline to carry out a consistent process. Integrity is measured by having accurate
physical inventory when compared to the inventory on the books. Commitment to customer
service is measured by fulfilling Repair Orders in a timely manner. Discipline is measured by
having sufficient inventory to meet customer needs the majority of the time without inflating the
inventory to such a level as to drain cash from the dealership with inventory that is depreciating
in value. “Age is never our friend” in terms of parts’ value.
There are occasions when customers create a Special Order for a specific part that has no
previous history of being ordered by the dealership. Often these Special Orders are accessories to
vehicles (e.g., special colored wheels, spoilers, heated steering wheels, etc.). A problem that
occurs often is that the vehicle owner, after ordering the special part, does not come back to
reclaim it due to a change of mind. This can create a significant problem for the dealership
because Manufacturers typically do not want their parts back and that holds true particularly with
BUSI 474: Fixed Operations 56
special-ordered parts. One method for controlling inventory of Special Order Parts (SOP) is to
ask the customer to pay for the part in full or at least a significant down payment for it. When the
SOP arrives in the Parts Department, the customer will be contacted to set an appointment to
pick up the part or often to have it installed on the vehicle by the Service Department. After
multiple attempts of trying to reach the customer to come in for the part, the dealership will need
to determine what to do with it. The part could be sold on eBay or advertise the part at 50%
discount on Internet sites that advertise obsolete parts for purchase.
In the case of Special Orders, care must be given to order the correct part. If the wrong
part is ordered from the Manufacturer, the dealership cannot just send back any part to the
Manufacturer. Every Manufacturer has its own policies for returns of parts that depend on time
frames for when the returns occur. BMW, for example, has a liberal policy of taking any returns
regardless of age. There usually is a 5% return fee or if the dealership is returning more than 4%
of a parts order, there will be a 25% return fee of the value of the parts.
Accuracy of Inventory Levels
The accuracy of inventory levels is an activity of comparing the inventory levels in the
accounting system with the physical inventory levels determined by perpetual bin counts where
each parts employee checks assigned bin areas daily so that the entire inventory is physically
counted twice annually. One report that is used to measure the accuracy of parts inventory levels
is the Negative on Hand Report. This report measures the parts that were requested but were not
physically available in the inventory when needed. The report is run on the last day of the month
to account for what has been ordered but is not in inventory and has not been paid for yet by the
customer.
Other reports used to measure the accuracy of parts inventory levels are Depreciation
Report on Aging Inventory that identifies parts that have exceeded the standard shelf life and
have not been sold yet as established by dealership policy. The goal is for inventory to be sold
within 60-90 days. The Outstanding Order Report measures when a part on the shelf was not
received properly (logged) into the inventory but was paid for by the Accounting Department on
an invoice. What is done when these reports identify a difference between the system inventory
and the physical inventory is that the employee who discovers the discrepancy (e.g., only 2 in
physical inventory but 3 are in the system for a particular part) needs to communicate the
BUSI 474: Fixed Operations 57
discrepancy to the managers in a timely manner and an effort is made to determine where the
misalignment occurred.
BUSI 474: Fixed Operations 58
CHAPTER 4 ASSIGNMENT:
Parts Metrics
To determine the date that each report is due, refer to the Course Chart in Blackboard.
The report is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover
each topic but not less than 500 words. You will use your class notes, any materials provided by
the instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how a Parts Department within an automotive
dealership manages inventory and achieves profitability by answering the following questions
based on what was learned from the textbook and other research:
1. Describe the Service Pricing Guide (SPG) concept and how it applies to managing
inventory value within the dealership Parts Department.
2. Describe the concept of Parts Inventory Management and why it is important for the
dealership’s financial success.
3. Describe the Phase In / Phase Out concepts and apply the concepts to a dealership’s
parts inventory.
a. What are the criteria to Phase In parts?
b. When are the criteria to Phase Out parts?
BUSI 474: Fixed Operations 59
CHAPTER 5: PARTS OPERATIONS
Overview
The Parts Department is likely the most profitable Strategic Business Unit (SBU) in the
dealership. It is tied to the need of vehicle owners to maintain and repair their investments in the
form of their vehicles, there are multiple customer outlets for the Parts Department, most
customers are paying at the full retail price, and, unlike the Service Department that uses the
most employees in the dealership, a properly functioning Parts Department can run effectively
with a small number of employees. In this chapter, the discussion will focus on how a successful
Parts Department should operate.
In the diagram of a typical dealership layout (located in the Appendix of this handbook),
it is noteworthy that the Parts Department is centrally located to the Service Department for its
top customer group – the service technicians, the Collision Center if co-located with the
dealership, and the lobby of the dealership for retail customers. The Parts Department also has
access to the exterior of the building for shipping and receiving materials outside of the
dealership. The pressures on running an effective and efficient Parts Department are significant.
To be effective requires that the minimum wait time occurs between when a part is requested and
when a part is installed where it is intended to be placed. To be efficient requires that the process
of being effective is achieved with the least cost of resources. It would be wonderful if the
needed part was available 100% of the time when requested but that is infeasible and even if it
could be achieved would involve an enormous investment in inventory.
In previous days, the concept was to have a narrow selection of part items with a deep
inventory to cover the potential service requirements most needed on a regular service day. It
was expected that an unusual part needed would require several days before being available for
installation. Today, with the supply chain logistics coupled with technology available, Parts
Departments can widen their inventory with more parts that cover more possible repair needs and
go with less depth of those parts because the inventory can be replenished quickly, sometimes
within the same day. Part of the pressure to maintain an effective and efficient inventory
management system within the Parts Department is that, like pre-owned vehicles inventory, the
BUSI 474: Fixed Operations 60
parts inventory is paid by the dealership with cash. Every part sitting on the shelf is cash not
available to the dealership to use until that part has been paid for by the customer.
There are three primary customer categories of a dealership Parts Department: (a) Retail
Internal – primarily the dealership Service Department and Collision Center if the dealership
owns one, (b) Wholesale – primarily independent service and body shops where there is a
contracted business relationship, and (c) Retail External – primarily do-it-yourself customers and
those wishing to purchase manufacturer brand apparel and vehicle accessories. Of these various
customer groups, the dealership Service Department is the largest category and the top priority
for the Parts Department because of the franchise relationship with the Manufacturer. It is
important that the dealership complete the customers’ Repair Orders in a timely manner to
maintain customer satisfaction and thus in good relationship with the Manufacturer. In the next
section, how to manage the inventory is discussed.
Supply Chain Logistics
The Manufacturer determines which parts units are kept in inventory and the minimum
quantities of parts required to be stocked by the franchised dealership Parts Department. The
remainder of the stock levels are left to the local dealership managers and is based on historical
data contained within the Dealership Management System (DMS) and on pending Repair Order
needs. What has changed dramatically recently has been the ability of delivering parts to
dealerships quickly using a supply distribution system driven by database systems.
For parts that are standard (e.g., oil filters, air filters, etc.), resupply is achieved through
inventory management systems that monitor stock levels of the parts as they are received into
inventory and removed from inventory through purchases. Under normal conditions, the
resupply can wait until the next business day to replenish standard stocking levels. Dealerships
will have relationships with various forms of parts suppliers starting with the Original Equipment
Manufacturer (OEM) from its regional Distribution Center that usually can deliver an ordered
part by the next business day if ordered by close of business. If the dealership needed an OEM
part on the same day, and the OEM Regional Distribution Center was unable to deliver that day,
the dealership might purchase the part from a competitive OEM-branded dealership’s Parts
Department. Other options for suppliers of non-OEM parts would be local independent parts
stores (e.g., NAPA, AdvancedAuto, AutoZone, O’Reillys, etc.) where either a dealership Parts
BUSI 474: Fixed Operations 61
Department employee can pick up the part from the store or have the part delivered by the store
to the dealership Parts Department.
For larger dealership groups, it often makes good economic sense to establish their own
parts warehouse and distribution center to move the inventory closer to the “front lines”. For
example, the Hendrick Automotive Group maintains a regional distribution center in the
Charlotte, North Carolina area that services all of North Carolina and Georgia dealerships in
addition to three other regional centers in the United States. OEM regional parts centers will
supply the Hendrick center on a daily basis. In turn, the Hendrick Distribution Center in
Charlotte has 28 trucks that deliver to the various dealerships within the region. Some trucks
deliver overnight to Georgia and North Carolina outside of the greater Charlotte area so that the
parts orders arrive at the remote dealerships early in the morning before the dealership is open
for business. The other trucks route to the local dealerships during the day usually with two
regular stops per dealership per day. In the local dealerships, parts orders submitted by late
morning will arrive in the afternoon; parts orders submitted by close-of-business will arrive the
next morning.
If a rush order is placed, a special truck may be dispatched to the dealership with that
order and any other parts scheduled to go to the dealership at that time. If a truck is at least half
full, it is economically a good shipment. In those situations where a small part is needed and is
not scheduled for a regular run and there are no other parts to be delivered to the dealership, the
decision may be to use a shipping carrier (FedEx or UPS) or delivery service to fulfill the order.
Though the dealership may pay $10 shipping for a $3 part, the economics of not sending a
special delivery truck makes sense and the ultimate goal is that a customer and a service
technician are waiting for the part to complete a Repair Order. Sometimes, small dealerships
form a cooperative arrangement with large dealerships that have a fleet of delivery vehicles to
deliver parts to the small dealerships for a fee on their routes to their own network of dealerships.
The first employees to arrive on a dealership lot each morning are those employees from
the Parts Department who are assigned the responsibility to login the parts delivered that
morning before the Service Department opens. These employees will ensure that every part on
the shipping invoice is accounted for and in good condition. The process is enhanced by the use
of scanning software that tells the employee in which bin in the Parts Department the item will
BUSI 474: Fixed Operations 62
be placed. Depending on the size of the parts order, this receiving the inventory may take an hour
or more. Often more than one employee is needed to complete the tasks in time for the start of
the business day in the Service Department.
The next stage in the process is to assemble the parts required for the first Repair Orders
of the day in the service bays. Some dealerships bundle the parts into plastic containers and keep
the containers in the Parts Department awaiting the Dispatcher to assign the order to a Service
Technician for pickup from the Parts Department. Other dealerships have “runners” assigned to
either the Parts Department or the Service Department who will deliver the parts containers to
the pre-assigned service bay for the Repair Order. Throughout the business day, the process will
continue of technicians going to the Parts Department to pick up needed parts or a runner
delivering the parts to the designated service bay for the technician assigned to each Repair
Order. When it is discovered that a part is needed to complete a Repair Order, and the part is not
in the Parts Department inventory, then the part needs to be located and a decision made on how
to obtain the part and when it can be expected so that it can be determined what to do with the
service technician until the missing part arrives.
Because most of the parts in inventory for a franchised automotive dealership originate
from the Manufacturer and is a major source of income for the OEM, factory audits are
conducted frequently by Manufacturers. The audits are focused on checking parts inventory
levels, warranty rates for labor door rate, following proper procedures especially in making keys
(BMW) to ensure that proper identification was obtained before a key was distributed, proper
levels of fluids were dispensed according to what was required on the R.O.s., etc. Factory Audits
occur annually or every 2 years and lasts 2-3 days when the auditors are on the dealership
premises. Often the auditors will come on short notice.
Auditors will find some charge backs (costs to the dealership) for parts and service where
there are discrepancies in inventory levels between what is listed in the inventory system and
what is on the shelf. There always will be charge backs to some extent because it is the auditors’
job to find them and because the management of inventory is so complex. Often, a service
technician thinks a part may be needed on a Repair Order, removes the part from inventory and
takes it to the workstation only to discover the part is not needed. The technician forgets to
replace the unused part back into inventory while an audit is being performed. Another example
BUSI 474: Fixed Operations 63
of discrepancy that would trigger a charge back might be of a dealership installing a part for a
warranty repair order that was not purchased from the Manufacturer. The part might have been
purchased from an after-market source and installed as warranty part. In those situations, the
Manufacturer could require the vehicle to be brought back in and a Manufacturer part installed in
its place. The dealership would be required to pay back the Manufacturer for that part and the
labor for installing the part and there may be a financial penalty assessed the dealership through a
charge back. This would be in addition to the damaged relationships with the Manufacturer. In
addition to Factory Audits performed by Manufacturers, dealerships conduct internal audits of
inventory annually by hiring an external company to ensure everything is in order.
Phase In / Phase Out
As stated previously, managing the vast inventory within a dealership’s Parts Department
that can be valued in the millions of dollars is critical on two fronts: Effectiveness and
Efficiency. To be the most effective would mean that there never was a situation when a part was
unavailable when needed. To be the most efficient would mean that there never was a part
remaining on the shelves at the end of the work day or that every part would be sold within a
short time period. Both of these extreme circumstances are unrealistic, so the goal is to find the
optimum balance between Effectiveness and Efficiency when determining stock levels within the
Parts Department inventory. For example, one of the inventory units that occupies the largest
space is tires due to the many sizes, brands, and quality levels. Remember that tires bring
minimum profit but maximum benefit to customer loyalty retention. The decision of stocking
levels for tires to be determined by the Parts Manager is answered by the following questions:
• Historically, what tires do our customers purchase?
• How fast can I be restocked when a set of tires is sold?
• What promotional sales are running that might increase the demand for the tires?
• What are the dates of the promotion?
During the course of managing the Parts inventory within a dealership, purchases are
made when customer sales support the current inventory levels. However, over time, those
purchases may decline and not be noticed readily by the Parts Manager because of the size of
inventory and the day-to-day volume of business occurring. The goal for a part in inventory is
BUSI 474: Fixed Operations 64
that it should be sold within a reasonable time period (usually within 90 days or sooner). For
parts that sit on the shelves longer than 90 days, consideration should be given to first reduce or
even discontinue ordering the part until the inventory is zero or find a buyer if the part has been
on the shelf one year or longer. This concept is called Phase Out. The sooner the Parts Manager
discovers an aging part, the more options are available to find that buyer.
On the other hand, Phase In is the concept where it becomes obvious to the Parts
Manager that a particular part that is not kept in inventory is being special-ordered on a regular
basis, typically special ordered 3-4 times within 3-6 months. To ensure that future delays will not
occur for this part, the manager may order a small quantity to be kept in inventory to improve the
time to complete associated Repair Orders. The Manager will want to closely monitor these
Phased-In parts for an initial period of time to determine if the need continues to be there that
justifies the inventory stocking decision. Usually, a Phase In decision is more closely monitored
and corrected if inaccurate than a Phase Out decision. In a Phase Out decision, the passage of
time can be a detriment. One solution to discovering potential Phase Out conditions is to use the
periodic internal inventory audit to question parts that have not sold recently. Dealership Parts
Departments are conducting internal audits of inventory on a regular basis by using a rotational
system so that each part category is audited at least once per quarter. In addition, there is an
incentive to discover potential parts to be phased out because Manufacturers do offer a return
allowance to the dealership on a quarterly basis whereby the dealership can sell back parts to the
Manufacturer less a restocking fee. The other options for liquidating a Phased-Out part is to sell
the part to other dealership Parts Departments, sell to independent stores, or sell the part on the
Internet. Finding a buyer is easier today than in the past. Any part can be sold for the right price.
If all else fails, the part can be disposed of and the value written off as a loss on the Parts
Department accounting ledgers.
Service Pricing Guide (SPG)
For the primary customer of the Parts Department, the dealership’s Service Department,
pricing is not a concern for competitive positioning because the full retail price is charged in
most situations. Where competitive pricing becomes a factor for the Parts Department is in the
other areas of Wholesale and Retail for external customers. The Service Pricing Guide (SPG)
was mentioned in the Service Operations chapter in terms of establishing labor rates (Customer-
BUSI 474: Fixed Operations 65
Pay Flat Rates and Warranty-based Door Rates). The Service Pricing Guides published by the
OEMs also establish the Manufacturer’s Suggested Retail Price (MSRP) for parts produced by
the OEM and serve as the benchmark for pricing the parts from the dealership to its various
customer groups. Not all dealerships use SPGs because there are many inconsistencies in pricing
when compared with other organizations that publish more competitive prices, what the market
is paying for the parts. Today, how many customers pay MSRP for anything? The main purpose
of the Service Pricing Guide for a dealership is to establish the benchmark for the discounted
price the dealership must pay the Manufacturer for the part.
Customers always remember one price – the first one given. It is very difficult to go up
from that original price quoted. Therefore, it is important for the dealership to establish a fair and
competitive price that will attract the optimum amount of sales while remaining profitable –
bearing in mind that the Parts Department is the most profitable department in the dealership and
responsible for providing coverage of the dealership’s fixed costs even during times when
variable sales operations are not experiencing high volumes. Part of the price calculations is to
compare prices in the local market to ensure that the dealership’s rates are competitive.
Independent shops usually always quote ranges because they do not have the extent of database
programs to help price the parts; however, the Parts Manager should remember that official
Manufacturer parts should be priced higher than generic parts because of the higher demand for
customers who desire only OEM parts in their vehicles, especially those still under warranty.
Most warranties stipulate that installing non-OEM parts can void the remaining portion of the
warranty.
The most competitive pricing areas are in the parts associated with the basic maintenance
services performed frequently during the year and can be performed by consumers at home vs.
using a service shop: oil, oil filters, air filters, tires, etc. These parts typically are at market-based
pricing. It is important for dealerships to set competitive prices even in their captive Service
Department Repair Orders. The customer does not discern whether the high price for repairs is
coming from high labor costs or high parts cost. If the price is considered too high, customers
will abandon the dealership and move their maintenance and potentially even their repair
services to independent service shops. If customers do not need to haggle for a price, they tend to
remain loyal to dealerships for performing their maintenance and repair needs.
BUSI 474: Fixed Operations 66
A method used by dealerships to remain price competitive is to offer price discounts
primarily based on vehicle mileage whereby, within the first 100,000 miles, a discount of 20%
would be given on labor and 10% on parts. At 150,000 miles (usually vehicles between 5 and 6
years of age) a labor discount of 25% and a parts discount of 10% would be given. At 200,000
miles, the discounts might be 35% off labor and 15% off parts. The discount formula would vary
depending on the model of cars and on local competitive market conditions. Metro areas are far
more competitive than rural areas for pricing purposes. The primary goal for offering price
discounts on parts and labor is to maintain profitable market share and not to lose Service
Department business to independent service shops.
A major obstacle in selling tires is that customers often do not have the money at the time
to make the needed tire purchase. To offset that obstacle, dealerships will offer credit terms
through the tire manufacturer or the dealership may offer free credit for 60 days through an
outsourced company. In parts required for Collision Centers (body shops), the pricing systems
usually are set up by the insurance companies so that each part item has one price nationally.
Staffing in the Parts Department
This section will focus on the various employee roles found within a typical dealership
Parts Department. In larger dealerships, there may be one or more individual employees
performing the stated tasks, and in smaller dealerships, multiple responsibilities may be covered
by one Parts Department employee. The actual job titles may vary in some dealerships.
A Parts Runner is an entry-level employee position. The purpose of the job is to ensure
that the service technician has the part he or she needs in a timely manner because the more
vehicles that go through the service bay in a day means more parts installed and revenues and
profits gained. The Parts Runner will take the parts that have been bundled by a Parts
Representative for a Repair Order and deliver the parts to the service technician waiting for
them. Usually, the Parts Runner will be stationed at the Parts Department window when the parts
order is received via the DMS Repair Order system. When a vehicle Repair Order has been
completed and the vehicle is driven out of the service bay, the Service Dispatcher will assign the
next Repair Order to a technician and any parts known to be associated with the new Repair
Order will be bundled by the Parts Representative and delivered by the Parts Runner to the
BUSI 474: Fixed Operations 67
technician in his or her designated service bay. In a typical-sized dealership Service Department,
there are 1-2 Parts Runners assigned to each Parts Representative.
A Parts Representative typically can support 10-14 technicians as long as the parts
needed for service appointments have been pre-filled and depending upon the efficiency of the
parts employee. During busy times of the day, a Parts Representative may assume the role of
Parts Runner to avoid the need to hire another employee. The Parts Representative is at the
computer 7-8 hours per day serving the different customer categories (Wholesale, Retail, and
Service Bay). The key success factor for a Parts Representative is accuracy so that a vehicle is
not disabled waiting for a part when the wrong part was ordered the first time and that the
inventory levels remain accurate.
There are many variances in parts items depending on colors, features, functions, etc.,
each with a part number that could be very similar to another part number in the category. For
example, interior seats have different colors, but some have heating in the seats and some even
have air-conditioning. If the Parts Representative is not careful, the wrong seat could be ordered.
Because Parts Departments would not stock vehicle replacement seats, the delays in the process
of ordering and receiving the wrong seat and then repeating the process to receive the correct
seat could mean days, if not weeks, of delays in having the customer back in his or her vehicle.
To mitigate these types of situations, there often is communication between the Parts
Representative and the Service Technician to make sure the order is correct. For dealerships
using electronic DMS systems for assigning parts in inventory to Repair Orders, the average wait
time from the request being entered into the DMS until the part in inventory is identified is less
than one minute; however, there could be as many as 50 parts required on an R.O. One of the
responsibilities of the backroom Parts Representative is to perform daily bin counts. The goal is
to have every parts bin hand-counted once every 6 months. To achieve this goal, a specific
number of bins need to be inventoried on a daily basis.
Another role as Parts Representative is the Retail Counter Representative who has the
same access to the DMS inventory system but handles walk-in retail customers and customers on
the telephone. There could be 100 calls or visits per day at the dealership Parts Department
Retail counter. If the Parts Representative serving the Service Bays were required to answer
these calls and visits, it would create a conflict of priorities with the dealership customers waiting
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for their vehicles to be serviced. A software innovation has been developed that allows the
technician to make a request for a part, check the inventory level of that part to determine if the
part is available, and reserve the part for the technician’s R.O. The Parts Representative can pull
the part in a non-emergency way and distribute the part to the technician. Sometimes a Parts
Representative may need to check with the technician to ensure that the requested part that is
pictured in the computer is the same as the part in the customer’s vehicle. To achieve this
comparison, the Parts Representative visits the Service Bay area with a portable computer that
links to the DMS inventory system. The technician will point out the old part in the vehicle and
the Parts Representative can then ensure that the right part will be ordered.
Some of the best Parts Representatives come from Service Technicians who have worked
as a technician for 15-20 years. At some point, technician’s skills begin to wane because of age
but the knowledge they possess on vehicles is invaluable to serving as a Parts Representative,
especially working the Service Bay window. Another good candidate for the Parts
Representative position is one who works on his or her own vehicles. For the Retail Counter,
good candidates are those who are passionate about the brand with some sales experience,
members of the local car club, and influential persons in the community for drawing in new
customers to the dealership. Even community college graduates with no experience but who
would love to work in parts can serve in the shipping and receiving department, as a driver in the
supply logistics area, or a parts runner. ), and local parts store manager (assistant parts manager
only because they have not learned the culture of the dealership yet to be observed to see if they
will fit into the culture).
How many employees should be hired for the Parts Department? There is no hard rule
but key measurement criteria that will be discussed in the next chapter of this handbook include
the revenues per employee, desired levels of Repair Order turnaround, the length of time needed
to conduct physical inventories, the time required for daily bin counts, the proximity of the
inventory (inside the Parts Department vs. located in an auxiliary location), etc.
The final roles discussed in this chapter are those of the Parts Department management
team. The Parts Department Manager’s success depends upon having the right number and
quality of employees on staff, well-trained, who communicate effectively, are highly motivated,
etc. The primary responsibilities of the Parts Manager are supervising the staff during the day
BUSI 474: Fixed Operations 69
and sometimes filling in for the other Parts Department employees as needed to pick up any
slack in production. First thing in the morning, a couple of hours are spent by the Parts Manager
going over reports from the day before to see what is happening with the fulfilled orders and
those orders carried over because of missing parts. The key report is the Work-In-Progress
Report that indicates how much of the parts inventory value being billed to the Service
Department has not been completed from the previous day. The WIP Report may be checked in
the middle of the day also. The Parts Manager will then meet with the managers from other
departments to discuss any problem areas that affect their departments. In addition to the General
Parts Manager, there may be an Assistant Manager if the Parts Department is staffed with more
than 10 employees.
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CHAPTER 5 ASSIGNMENT:
Parts Operations
To determine the date that each report is due, refer to the Course Chart in Blackboard.
The report is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover
each topic but not less than 500 words. You will use your class notes, any materials provided by
the instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how a Parts Department functions within an
automotive dealership by answering the following questions based on what was learned from the
textbook and other research:
1. Describe the three (3) categories of customers of a dealership’s Parts Department and
what their needs are to be filled.
2. All customers are important, but what is the prioritization order of the three customer
categories to the Parts Department?
3. Describe the Inbound Supply Logistics process for the dealership Parts Department
receiving inventory.
4. Describe the Outbound Supply Logistics process of the dealership Parts Department
delivering products to its customers
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CHAPTER 6: COLLISION CENTER
Overview
As stated in Chapter 1 of this handbook, most dealerships do not have a Collision Center
(body shop) as part of their Fixed Operations for multiple reasons: (a) low profit margins
(average of 10%), (b) insurance companies dictating the relationship directly with customers in a
secondary relationship role, (c) the unique skill sets needed by Collision Center technicians, etc.
The reasons for a dealership to have a Collision Center are (a) driving more sales for the Parts
Department, (b) being in a position for a vehicle sale if the damaged vehicle is totaled, and (c)
providing full service for the dealerships’ customer base. In this chapter, the details of how a
Collision Center operates and key metrics will be discussed.
Work Flow Process
The obvious purpose of a Collision Center is to repair body damages to vehicles after
being involved in an accident that requires major repairs. The process begins with the vehicle
owner usually contacting his or her vehicle insurance company or contacting the vehicle
insurance company of the driver who is at fault in the accident to begin the claim process. With
accidents involving wildlife, a comprehensive rider on the insurance policy is involved. Filing
with insurance companies accounts for over 96% of all Collision Center transactions. Another 1-
2% of the transactions occur when a private party pays. In many of these few cases, the vehicle
owner may wish to avoid filing a claim and is willing to pay cash to avoid increased premiums,
or a policy being cancelled, or avoiding an entry into the vehicle’s CarFAX history for future
resale purposes. The other 1-2% of Collision Center transactions are to repair dealership vehicles
that may have been damaged in a storm, or during a test drive, etc.
The insurance company will arrange for a rental vehicle to be used by the vehicle owner
during the repair time based on the policy provisions held by the owner. Owners without rental
vehicle coverage will pay for their own rental vehicle or make other arrangements for
transportation while their vehicle is being repaired. The insurance company will require the
owner to obtain estimates from three different body shop facilities pre-approved by the insurance
company for having such repairs completed on the vehicle. It is worth noting that an estimate is
BUSI 474: Fixed Operations 72
not a guarantee of final costs because there could be hidden damages, to be discussed in more
detail below.
The wrecked vehicle will be moved, if necessary, from where it was towed after the
accident to the Collision Center that has been approved to perform the work order. Upon arrival
at the Collision Center, a Center employee will take photos of the vehicle to be provided to the
insurance company or owner as documentation of the damages. A Center technician or manager
will write an initial estimate and send it to the insurance company or vehicle owner of the work
that is expected to be performed. After the party that will be responsible for payment of the work
accepts the initial estimate, the vehicle is thoroughly inspected by a Center technician. If any
previously unknown problems are discovered in the thorough inspection, a supplemental order
will be added to the original estimate. The updated estimate with the supplemental order will be
sent to the responsible party for payment of the repairs. If the final estimate is accepted by the
responsible party, work can begin on the damaged vehicle.
The parts that require repairs or replacement will be removed from the vehicle. The
replacement parts will be ordered from a Parts Department of a dealership or from another parts
supplier. Painting of damaged exterior panels is performed when the panels are disassembled
from the main body of the vehicle with all connecting sections disassembled and placed together
to blend the colors. When all replacement parts are in inventory at the Collision Center, they are
assembled on the vehicle. Approximately 90% of the time, the parts are replaced and not
repaired for the same economic reasons discussed in a previous chapter. Repairing a part takes
too much time for a trained technician to complete the task and, even then, the repaired part may
not be as good as just replacing a part rebuilt or brand new from the manufacturer. Whether to
replace or repair the broken part is determined by computer diagnostics in most of today’s
vehicles.
After all of the work has been completed on the vehicle, it is inspected by a technician to
ensure that all parts are working properly, even those not involved in replacement. The owner is
notified throughout the repair process of the ongoing status of the repairs. When the vehicle is
ready to be picked up, the owner is notified. When the owner arrives at the Collision Center, the
Estimator will walk around the vehicle with the owner to confirm that the repairs have been
completed to the owner’s satisfaction. The owner will sign the release form that authorizes the
BUSI 474: Fixed Operations 73
Collision Center to notify the insurance company to release the funds for the repair order in
agreement with the final estimate amount. In the cases where the customer will be making the
payment, the signed release form acknowledges the amount to be paid by the customer. If there
were costs above the final estimate, the customer usually must bear those costs in order to
receive the vehicle. The time between when a vehicle owner drops off the vehicle for repairs and
picks up the vehicle is called the cycle time.
Operations Considerations
Many dealerships that have Collision Centers choose to co-locate them with the other
dealership departments for multiple reasons: (a) close proximity to the Parts Department, (b)
close proximity to the New and Pre-Owned Sales Departments, (c) ready access to a rental car
company or loaner vehicle fleet used for Service Department purposes, and (d) more economies
of scale by using the same real estate vs. a separate lot and buildings in a remote location. In
addition, some Collision Centers are used as PDI (Pre-Delivery Inspection) Centers where
vehicles for a multi-site dealership are delivered to this site, inspected, prepped and delivered to
the receiving dealership.
The Collision Center has the largest exposure to environmental concerns out of all
departments within the automotive industry. There are many regulations on just the paint aspect
of the work, not to mention the enormous investment required for the equipment that protects the
Collision Center work from surpassing environmental regulations. In the paint booth, no gases
can be allowed to escape into the atmosphere. To be a Manufacturer-certified Collision Center,
the right tools and equipment need to meet both environmental considerations and meet the
Manufacturer’s standards for repair.
Besides dealerships, who offers Collision Centers? There are various forms of non-
dealership Collision Centers. Caliber Collision is a large franchised organization in addition to
Maaco Paint, and there are many privately owned, individual shops. Local shops appeal to
customers of older vehicles while certified Manufacturer shops appeal to owners of recent model
year vehicles. When Manufacturers certify a Collision Center initially, that certification is
permanent unless there are ongoing issues that would cause the Manufacturer to de-certify the
Collision Center. However, Manufacturers will inspect the final work of Collision Centers when
changes have been made to the vehicle model design. For example, BMW I series cars have
BUSI 474: Fixed Operations 74
microfibers in the carpet requiring different tools than for previous models. Some of the
independent shops are specialists like the Porsche shop in Charlotte where the owner restores old
Porsches and customers drop off their classic vehicles, pay $50,000 and tell the owner to let them
know if he needs more money to complete the restoration. The turnaround time for completing
the restoration could be 6 months to a year or more. Dealerships do not want that kind of body
repair business because they prefer high volume work in short time frames.
Staffing Considerations / Job Functions
The primary reason there are few Collision Centers is the difficulty in finding good
people to staff them. Collision Center work requires technicians with unique skillsets and there
are few technicians in the industry with those skillsets. Some have described the technicians at
Collision Centers as “artists” because of the demand to restore the vehicle to its original
appearance. Based on the law of supply and demand, Collision Center technicians can be paid
more than technicians in Service Departments, and often Collision Center technicians move from
Center to Center to acquire more pay. A Master Technician will receive around 70% of what the
insurance company will pay the body shop for the work. The remainder goes into supplies and
parts and 10% to profit. Apprentices receive about 30% of what is paid by insurance companies
or $35,000-$45,000 per year. Master technicians make more than twice that annual pay.
Part of the shortage of qualified Collision Center technicians is due to individual small
shops transitioning into today’s model of large dealership-based Centers. In the small shops,
technicians could work when they wanted, wear what they wanted, have the hair length they
wanted, etc. In the large dealership-based Centers, technicians wear uniforms and work assigned
business hours. The challenge in staffing body shops is significant and a reason for many to
avoid having a Collision Center. Painters, especially, are in high demand and low supply. To
offset the shortage, dealerships often try to locate skilled painters and body technicians at local
community colleges. Body Shops typically use manual painting vs. automated painting as done
in the original manufacturing process because there are not enough paint jobs in a Collision
Center to justify the enormous costs of an automated painting setup.
BUSI 474: Fixed Operations 75
Performance Metrics
The primary performance metric for Collision Centers is to be fast and accurate with the
repairs because whoever is paying the bill, usually the insurance company, wants to minimize the
number of days necessary to pay for the rental vehicle used by the end customers while their
personal vehicles are being repaired. Just to give a perspective, State Farm Insurance pays an
average of $1 million per day in rental vehicles for its clients. Considerations of a job well done:
safety within the Collision Center, how well the paint matches between old and new panels, the
final fit and finish appearing as if the vehicle never was in an accident, and all done in a timely
manner. Therefore, Estimators need to take sufficient time to come up with as accurate an
estimate as possible. The customer and the insurance company will be putting time pressure on
completing the estimate quickly. Service technicians will perform any engine work; the body
technician will perform any work required on the frame, and the painter does the finish work. All
technicians will work together as a team to communicate throughout the entire Repair Order and
all should have the same high expectation of quality work for the final product to be acceptable.
Relationships with Insurance Companies
As stated previously, relationships by the Collision Center with Insurance Companies are
critical because 96% of all business coming to the Center is directed by the responsible insurance
company. To maintain an effective and efficient process with the goal of completing the work
quickly and with quality, insurance companies have lists of pre-approved shops for different
makes and models of cars where customers can get immediate approval. The customer can
choose to go with another shop but, in doing so, risks resistance from the insurance company and
potential delays in having the vehicle repaired if the chosen shop does not meet the insurance
company’s criteria. If the Collision Center has both a preferred relationship with customers so
that they request the dealership’s Collision Center, and a pre-approved relationship with the
insurance companies, that would be the best position to be in for sustained level of business.
Insurance company criteria for selecting shops to recommend include (a) cycle time to
complete repairs, (b) total costs compared to standard costs for specific work, (c) Customer
Satisfaction scores, etc. Typical cycle time to complete most repairs from the time the estimate is
approved until the customer drives the repaired vehicle off the lot is 2-3 weeks. Service repair
rates at body shops are around $50/hour while the Service Dept. is $110/hour. Therefore, the
BUSI 474: Fixed Operations 76
Parts Department is where the profitability is for the dealership. Having access to reconditioned
parts that are certified by the Manufacturer helps to lower costs and can give dealership-based
Collision Centers a more favorable status with insurance companies. The goal is for dealership
Collision Centers to become a certified Direct Repair Program (DRP) Center with the insurance
company. If the Collision Center has done well before on behalf of the insurance company,
usually the approval is instantaneous, and work can begin.
BUSI 474: Fixed Operations 77
CHAPTER 6 ASSIGNMENT:
Collision Center
To determine the date that each report is due, refer to the Course Chart in Blackboard.
The report is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover
each topic but not less than 500 words. You will use your class notes, any materials provided by
the instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how a Collision Center (Body Shop) functions within
an automotive dealership by answering the following questions based on what was learned from
the textbook and other research:
1. Explain why many dealerships do not have a Collision Center as part of their fixed
operations.
2. Explain why the other dealerships do choose to own a Collision Center.
3. Explain what criteria insurance companies use to recommend specific Collision
Centers to their clientele.
4. Describe the process from the moment a vehicle is involved in an accident to the
moment when the customer drives off the Collision Center lot with a fully repaired
vehicle.
BUSI 474: Fixed Operations 78
CHAPTER 7: SUPPORT DEPARTMENT RELATIONSHIPS
Overview
In this final chapter, it is good to review how the various departments of the automotive
dealership specific to the Fixed Operations’ departments must coordinate their activities so that
the entire dealership benefits from an effectiveness (achieving the dealership’s goals and
mission) and from an efficiency (achieving the goals with the least amount of resources required)
perspectives that will lead to the dealership growing and prospering into the future. Primarily, the
relationships that will be covered in this brief chapter are as follows, in no particular order:
• Parts and Service
• Parts and Collision
• Service and Pre-Owned Sales
• Service and Loaner Fleet
• Service and Business Development Center (BDC)
• Fixed Operations and Accounting Department
• Fixed Operations and Finance Department
Parts and Service
The relationship between the Parts Department and the Service Department have been
discussed at some length previously in this handbook. It is important to review the essence of
that relationship at this point to ensure that students remember these key elements when working
at an automotive dealership in their careers. The Parts Department typically is the most profitable
department in the dealership because the parts are sold often at full retail price and the Parts
Department requires fewer employees to manage effectively and efficiently. The Service
Department relies significantly on the Parts Department to provide the needed items to complete
the Repair Orders so that the Technicians can move on to the next Repair Order in a timely and
profitable manner for the Technician.
To achieve optimum coordination between the two departments involves (a) effective 2-
way communications, (b) doing a task once accurately, and (c) making collaborative decisions
when following policies does not provide solutions of problems. Effective 2-way
BUSI 474: Fixed Operations 79
communications involve the Service Department accurately diagnosing the precise parts that are
needed for the work to be completed on the vehicle year and model related to the Repair Order.
Conversely, the Parts Department needs to communicate the availability of the needed parts and
the expected delivery date and time when parts are not already in inventory. Often these
communications occur through accurate data entry into the Dealership Management System
(DMS). Sometimes the communications need to be in person. When Service Technicians
“borrow” a part from the Parts Department to determine which part is needed, the Parts
Department needs to record that “loan transaction” and the Service Technician needs to either
return the part for check-in purposes or document in the DMS the installment of the part in the
vehicle on the Repair Order.
Effective communications play a significant role in performing tasks accurately the first
time and not resulting in double work that is costly both in terms of expense and in terms of
customer dissatisfaction. While the Service Technician bears some responsibility to request the
correct part, the primary responsibility falls on the Parts Department to order and stock the
correct parts. This can be difficult given the many unique parts that vary by manufacturer,
vehicle model, year, colors, functions, etc. Just one part number that is mistyped can result in
delays of reordering and receiving the correct part and the extra expense of handling the
unneeded part. Remember that Manufacturers do not like to receive return parts and the methods
for returning parts is limited. Disposing of the incorrect part can be costly to the dealership.
The best method to run any organization is to establish policies and procedures for as
many situations that can occur within the organization and to train employees on those policies
and procedures that have proven to lead to effective and efficient operations. However, not every
situation can be anticipated. Life always presents interesting twists. Most of these unique
situations can be handled by skilled employees and move on with the routine tasks. In those
unique situations that involve two departments like Parts and Service, there should be some
communications as to what the final successful solution was so that the information could be
available in the future if a similar situation occurs. If the situation occurs often enough, then the
solution needs to become part of the policies and procedures documentation of the dealership.
BUSI 474: Fixed Operations 80
Parts and Collision
The relationships between the Parts Department and the Collision Center are similar to
those of the Parts and Service Departments though the actual parts being ordered are typically
different. One key difference is that most of the parts needed in a body shop repair order are not
kept in standard inventory and thus those parts need to be ordered, typically from the
Manufacturer. There will be longer delays in receiving the parts which will require more
communications by the Parts Department with the Collision Center on expected delivery dates
and times. Remember that, though the timeframe in repairing damaged vehicles is longer than
the typical timeframe associated with maintenance and minor repair orders, completing the work
as soon as possible is a key metric in determining the prospect of future sales. In the case of
Service Departments, the time pressure is from dealership customers, whereas in the case of
body shop work, the time pressure is from the insurance companies.
The magnitude of delays increases if the part that was ordered is incorrect or does not fit
the body of the damaged vehicle. Therefore, the requirement by the Collision Center employee to
be specific in measurements, accuracy in paint colors, etc. intensifies. It probably is best if more
than one Collision Center employee inspects the vehicle and confirms the accuracy of the order
request and that the Parts Department employees double-check the accuracy on their end as well.
Service and Pre-Owned Sales
The primary relationship between the Service Department and the Pre-Owned Sales
Department is when a customer trades in a vehicle for the new one being purchased. If the Pre-
Owned Sales Manager determines that the trade-in vehicle will be resold from its inventory vs.
sold wholesale to another dealership or through an auction, that will require the Service
Department to perform whatever repairs that are needed to bring the vehicle up to specifications
for the sale. If the vehicle is eligible for being sold as a Certified Pre-Owned (CPO) Vehicle
under the Manufacturer’s warranty, additional services may be required (e.g., replace the tires,
etc.) that might not be necessary if the vehicle is not eligible for CPO status. Even if the vehicle
will be sold at wholesale and thus not become part of the dealership’s inventory, there may be
repairs that are needed to bring the vehicle up to a drivability level as a minimum level.
BUSI 474: Fixed Operations 81
These requirements place time pressure on the Service Department that is managing its
regular service appointment, walk-in appointments, work on new vehicles just received on the lot
for sale, preparing new vehicles that were sold for the customer to drive off the lot, warranty
work, manufacturer recall work, and mechanical repairs to vehicles in the Collision Center, if
owned by the dealership. The challenge for repair work on vehicles being added to the Pre-
Owned vehicle inventory is that the first 21 days after receiving the vehicle and paying cash for
it are the critical days for selling the vehicle due to rapid depreciation on the value of used
vehicles. The number of days the vehicle is not available for sale waiting for the Service
Department to complete its work reduces the opportunity for a profitable sale. The solution used
often by dealerships is to move up the priority of completing repair work on any pre-owned
vehicle where a customer is interested in purchasing it. On the first day that a pre-owned vehicle
is accepted in a trade, photos are taken, and the dealership’s website is updated to include the
newly-added vehicle.
To avoid overwhelming the capacity of the Service Department requires ongoing
communications between the Pre-Owned Sales Manager and the Service Department Manager. If
the Service Department is inundated with work, the Pre-Owned Sales Manager may need to sell
a vehicle wholesale instead of retail or the Service Manager may need to obtain authorization to
extend the work hours of some technicians to meet the extra demand temporarily. The Service
Manager needs to communicate in the regularly-scheduled meetings of the dealership
management team the current status of work demand so that other managers can adjust their
current procedures before a situation arises that could create a problem for the dealership at
large.
Service and Loaner Fleet
As stated previously, not all dealerships provide loaner vehicles for their service
customers. It is expected by the Manufacturers of Highline vehicles that franchised dealerships
will include a loaner fleet. Some Import and Domestic dealerships have begun offering loaner
fleets as a competitive advantage. Other dealerships provide onsite rental car companies (e.g.,
Enterprise) for customers to rent their own vehicles for repairs that will take a few days to
complete and where customers have no alternative means of transportation. The goal for all
BUSI 474: Fixed Operations 82
scenarios is where the Service Department completes the Repair Orders as quickly as possible so
that the dealership is paid, and the loaner vehicles are returned in a timely manner.
One significant contributor to a successful relationship between the Service Department
and the Loaner Fleet management team is to communicate effectively and regularly the status of
the Repair Order. Initially, a best estimate of when the Repair Order will be completed provides
an indication of which loaner vehicle is available during that specific start and end date and time
to be used for the customer of that specific Repair Order. Imagine the puzzle board of the BMW
dealership that has 144 loaner vehicles and an employee that manages the distribution of those
vehicles. If all goes according to plan, the process has a certain level of complexity. However,
how often do plans go as expected? The results can be a much more complicated process of
scheduling the loaner fleet availability.
Some of the problems in availability of a loaner vehicle is attributed to the customer who
decides to delay picking up his or her vehicle after being notified by the Service Department that
the repaired vehicle is ready. This happens often in the Highline dealership when there is no
sense of urgency on the part of the customer to return the newer model loaner vehicle for his or
her older owned vehicle. Some dealerships begin charging a daily rate for customers who abuse
the system in this way. On the Service Department end, it requires maintaining status reports to
the Loaner Fleet Manager of any changes in status if a part has not been delivered as planned or
a technician requires more time to complete the Repair Order. Obviously, the Service Center
needs to inform the Fleet Manager as soon as possible when the expected completion of the
Repair Order is firmly established so that the Fleet Manager can be in contact with the customer
to return the loaner vehicle.
Service and Business Development Center (BDC)
Not all dealerships use a Business Development Center (BDC) to manage service
appointments. For those dealerships that do not use a BDC, the function of receiving calls from
customers asking for service appointments is handled internally by either dedicated inbound-call
employees or by the Service Advisors. Many dealerships avoid the Service Advisor option
because it detracts from the personal contact with customers who are in the Service Department
when the Advisor must interrupt the conversation by receiving a telephone call. Whatever
method is used, the same criteria are needed to ensure the service appointment process is handled
BUSI 474: Fixed Operations 83
in an effective (maximizing the service appointments that can be scheduled) and an efficient
(completing the service appointment call as quickly as possible) manner.
The two key responsibilities in this relationship is to ensure that the Service Department
accurately informs the appointment takers of the available time slots for the different levels of
service required (the Supply), and the call center accurately informs the Service Department of
how many service appointments have been scheduled into the future (the Demand). In any
service-related operations, regardless of industry, Time is the number one enemy. If a moment in
time passes and there is an idle seat on a mode of transportation, or a berth on a cruise ship, or an
empty bay in the Service Department that no customer paid to occupy, that is sales revenue lost
forever and cannot be recovered.
There is a limit at which customers are willing to wait for their vehicles to be serviced
before they choose a different repair shop. The dealership needs to ensure that the service dates
are not beyond its customers’ expectations. Therefore, the Service Department, armed with the
information provided by the BDC or other call center organization as to the current demand on
service appointment dates, can adjust by adding service hours to the department, adding
technicians to the schedule, etc. The Service Department can notify the BDC or other call center
organization when additional service appointment opportunities have been made available so that
more appointments can be made.
Fixed Operations and Accounting Department
This section is not limited to just Parts, Service, or Collision Center but applies to all
three departments within the Fixed Operations of the dealership. All financial transactions
conducted by the various departments of the dealership flow through the Accounting
Department. According to a profession accounting firm, in the automotive dealership industry,
the Accounting function is second only to a hospital accounting system in its complexity. Add to
that fact that automotive dealerships operate on 12 individual sales cycles within a calendar year,
the complexity intensifies with time pressures. The Accounting Department is the final stop on
the dealership being paid for products sold or services rendered. The Accounting Department
produces valuable financial reports that managers of each department use to measure their
performance.
BUSI 474: Fixed Operations 84
To maintain a successful relationship between the individual Fixed Operations
Department and the Accounting Department requires that detailed information associated with
any business transaction within the department be reported accurately and quickly. These
functions usually are produced through the Dealership Management System (DMS). One of the
benefits of the DMS is the capability to discover data entry errors so that the input is correct the
first time it is submitted. The data that are entered can be viewed by all relevant departments
once the transaction is in the system. The weak link that is controllable by each employee with
responsibility to perform data entry into the DMS is to not delay in doing so. If the employee has
the information that is needed to be entered and is distracted with another task before entering it,
there is potential for missing transactional information requiring excessive manpower to locate it
and complete the transactions.
In the same way, the Accounting Department needs to ensure accuracy of data and to
produce timely reports for managers. When discrepancies occur, the Accounting Department
needs to work with managers to resolve them.
Fixed Operations and Finance Department
The relationship between the Finance Department of the dealership and any of the Fixed
Operations is on an occasional vs. a regular basis. The Finance Department’s primary role is to
ensure that the dealership’s cash flow is not restricted and that the assets of the dealership are
producing desired returns on the investment. The Finance Department provides the initial capital
funding for the departments of the dealership when it opens. This capital funding includes initial
inventories, furniture and fixtures, and initial working capital until the department can become
self-sufficient from the sales generated by the department (usually 45-60 days). On occasions,
when some departments exhaust cash reserves and are thus in financial crisis, the Finance
Department may be called upon to advance additional capital funding on an interest-bearing loan
basis to the imperiled department for a limited time to be restored to financial health.
It is incumbent upon managers within the various Fixed Operations departments to
manage the resources of the department in a manner that does not reach a crisis situation that
needs the extra assistance of the Finance Department to rescue it. This effort can be achieved by
maintaining an operation where customers continue to want to bring their business and thus sales
are healthy and growing, by controlling labor and inventory costs, and by reducing waste or
BUSI 474: Fixed Operations 85
write-offs of unnecessary parts. In addition, Fixed Operations managers need to be vigilant on
studying financial reports produced by the Accounting Department and looking for areas where
problems could be arising. Early detection and correction can save major embarrassment and
emergency responses later. Fixed Operations managers should seek assistance and/or advice
when they need help rather than to hide or delay because of fear or pride. Everyone in the
dealership is on the same team, and the team can only be as strong as its weakest member.
BUSI 474: Fixed Operations 86
CHAPTER 7 ASSIGNMENT:
Support Department Relationships
To determine the date that each report is due, refer to the Course Chart in Blackboard.
The report is due at 11:59 p.m., Eastern time. Each report should be written to sufficiently cover
each topic but not less than 500 words. You will use your class notes, any materials provided by
the instructor group, and your own research online (e.g., Cox Auto, NADA, etc.) in the public
domain.
In this report, students will describe how the various fixed operational departments work with
other departments of an automotive dealership by answering the following questions based on
what was learned from the textbook and other research:
• Describe the relationship between the Parts Department and the Service Department.
• Describe the relationship between the Parts Department and the Collision Center.
• Describe the relationship between the Service Department and the Pre-Owned Vehicle
Sales Department.
• Describe the relationship between the Service Department and the Loaner Fleet Manager.
• Describe the relationship between the Accounting Department and the Service
Department.
BUSI 474: Fixed Operations 87
APPENDIX: DEALERSHIP LAYOUT EXAMPLE
SERVICE
COLLISION
PARTS
F & I
ACCOUNTING
SALES
BUSI 474: Fixed Operations 88
NADA DEALERSHIP MANAGEMENT GUIDES
FIXED OPERATIONS
Service Department:
o SP24: A Dealer Guide to the Three Ps of Effective Service Management
o SP25: Handling the Morning Service Rush
o SP20: Recruiting and Developing Technicians
o SP3: Repair Order Analysis
o SP22: Service and Parts Communication
o SP29: Service Department Performance Analysis
o SP13: Technician Retention
o SP10: Effective Service Advisor
Parts Department:
o SP21: A Dealer Guide to Parts Inventory Management
o SP2: Improving Parts Inventory Efficiency
o SP7: Parts Checkup: Performance Level Analysis
o SP5: Parts Management and Profitability
o SP30: Top Five Ideas for Managing Parts Department Inventory Performance
Collision Center:
o The Secrets to Body Shop Profits: The Dealer Handbook
