Automotive consultant Chris Oakham, of Trend Tracker, said franchised dealers were missing out on a significant opportunity to retain their used car buyers and should be offering service plans and MoT tests as retention tools.
Oakham pointed out that the dealer’s heartland 0-4 year car parc is now 23% off its 2004 peak and will only recover when new registrations increase significantly, likely to be five to six years yet. With inflation outstripping income people are also finding their disposable income squeezed and are keeping their car for an average of six months longer.
In addition, the current average overhead absorption rate for UK dealers has fallen to 58.8%, well below ASE’s industry benchmark of 80%.
“Since 2004 franchised dealers have lost about two million customers for their service department if they haven’t broken out of the four year car parc,” said Oakham.
That’s an approach taken by Graham Jacobs, chief executive of Picador, a Hampshire-based dealer group with four Vauxhall outlets.
He incentivises sales executives and service advisers to sell service plans, and has achieved 33% penetration.
Although Picador’s retail labour rate is discounted slightly to enhance the plan’s attraction, Jacobs said it contributed £600,000 to group revenue in 2012.
Administered by service plan provider Emac, it puts customers’ money up-front into Picador’s account and helps with cashflow and forecasting.
“The most crucial thing is to incentivise it. We pay £25 per plan sold.
We have a sales league that is updated weekly, and if a department is not performing we can get onto it.”
A crucial aspect for profitability is to not overlook the service plan customer’s additional requirements.
Audits by Coachworks Consulting on its dealer clients has determined that around 15% of vehicles are not receiving a health check when they come through the workshop.
This equates to an average of £333,000 missed revenue.
However, dealers can find that reporting additional red or amber work to customers on service plans can be a difficult conversation.
“We get a few customers dissatisfied that they face an extra charge because their brake pads need changing at 20,000 miles, for example.
They ask why we can’t include that in a plan, but obviously some of these issues won’t apply to every customer,” Jacobs said.
“We’re clear on what our plan covers when we sell it but these conversations can be awkward.”
Jacobs said as a result Picador had been looking at how it could incorporate commonplace additional maintenance jobs such as air-con refresh or brake fluid replacement into the service package so customers don’t need to worry about these additionals.
It also operates a service club with discounts of up to 35% for cars over three years old.