Issue Date: Service Advisor Mar 15, 2010, Posted On: 3/16/2010
Why car dealers get peeved by "policy" work Dealerships operate at notoriously thin profit margins. It is just the nature of the business that cycles through feast or famine as sales peak and bottom-out during a typical the year. Dealership owners often don't know if they will turn a profit until the last several days of a month.
So it is in service. One day we can be up and the next day the shop is losing money.
Realistically there is a limit to the amount of work a shop can turn out, but there is no bottom end to losing money short of having no work at all. These factors conspire against profit margins to erode gains made during the peak business months.
That is why it is critical not to be haphazard with pricing or policy accounts during our traditional boom months. According to NADA data, the average shop is able to carry just 5.7 percent of service/parts revenue to the bottom line. For the entire dealership the margin is even thinner. Net profits of just 2 or 3 percent of sales are common.
What does this mean for service advisors? It means that you have to work that much harder if you discount a repair bill or have to write-off a mistake. For every dollar you lose or give away, it will take $50 in sales to recover that lost profit.
Here's an example: A few days ago, while a service advisor was rushing through the morning crunch, he forget to check the delivery date on a warranty job for a transmission complaint. After all the work was done, a $1,400 claim went through the system and was rejected because the vehicle was out of warranty. Thankfully, the customer had an extended service contract - but with a $100 deductible. The shop ate the $100. That means the profit is gone on $5,000 worth of sales. That's more than an entire day's production for this advisor's team.