The essential basics which create highly successful, marginal or poor-performing fixed operation departments are the same for everyone. How these fundamental tidbits are structured, managed, and maintained makes the difference between OK and superior results. Here, the little things ultimately become big things.
Consider that the challenge of fixed ops department management begins with the ever-present expenses – the essential cost of doing business – for most a tidy sum every four weeks. A department executive’s charge is to manage (say minimize) what he or she can, as well as overcome these daily overheads by structuring and producing the creation of expense-paying dough known as gross profit, with some leftover for the necessary-to-survive net profit.
In the service, collision, and parts worlds that constitutes a significant number of critical factors – technician staffing, technician pay, effective labor rates, tech proficiency (output), tech attendance hours, customer counts, labor purchase per visit, stall space, parts procurement, parts margins, inventory fill, purchase discounts, available equipment, parking standards, and even sales pace. We could easily nitpick additional items which impact some or all of these chief influences. When one considers that expenses are created every minute of every day, approximately 720 clock hours a month – ouch, while bill-paying gross profit is being produced about 160 hours (typical monthly tech attendance hours if they show up on time) during the same period, the need for efficiency in all of the dynamics is evident.
Consider what even one solid technician can produce in gross profit calculating a medium performance.
When one adds the additional parts gross profit generated to this figure (around 45% or $5,800), the value of one productive technician is huge. Over a year, the total bill-paying money that tech provides is over $240,000! This reality shows clearly that the first fundamental for service, collision, and parts gross generation is effective tech staffing! For the collision world, a productive tech provides similar figures.
One efficient tech provides over $100,000 in annual gross profit and much higher in the areas where the shops are paid a reasonable labor rate by the suffocating insurance company monopolies (Note: painters are even more productive – many well over 200% output). The only saving grace for the collision world is the tech proficiency figure, the most critical aspect to manage. The collision tech will provide a similar amount of parts gross (around 40%), which is another $40,000 or so in parts gross profit.
These impactful statistics demonstrate how important efficient tech staffing is in all fixed operations departments, and the loss of even one tech creates a hefty financial black eye. Few dealers’ fixed departments appear to be struggling with lack of business, rather maintaining proper technician staffing is their largest challenge. Without producers, the rest of the business effort is ineffective, no matter the support talent levels.
Effective labor rates are another area which benefits or not, the department numbers. A group of 10 techs producing 1,600 flat-rate hours (100% Output), would impact the gross profit substantially using different effective labor rates. Consider that a $10 increase in the overall effective rate creates an additional $16,000 gross profit monthly, which is $192,000 a year! Almost the amount a good baseball pitcher makes per game pitched.
With the manufacturers shove towards providing a quick service program, no appointments needed, and self-scheduling online, I am seeing effective labor rates diminished, even with large increases in the so-called fixed door rate. The push for speed and the planting of customer expectations that every visit will be performed immediately and quickly has taken a toll on proper and thorough maintenance services, particularly on higher mileage vehicles, along with the effective labor rate. Visits which once included all of the needed maintenances have too-often turned into an engine oil change and a maybe tire rotation, accompanied by a silly unprofitable labor rate. And the hefty leasing purchases these days have added to this fiasco.
The above also leads to the amount of labor purchased on a typical customer visit. The average labor or hours per customer repair order with most franchises have crashed from the common 2.5 to 3.0 hours of years ago to as little as 1.0 to 1.4 now, particularly on the high-volume models. Some thanks (sarcasm) can be given to the bully quick service push, the colossal reduction of vehicle maintenance requirements, leasing blues, and the loss of high-mileage profitable vehicles to independent shops. You may have noticed that the quickie lubes have begun aggressively pushing brake service and other larger fixes beyond the basic oil change.
On the other hand, collision centers need smaller jobs to supplement the large repairs which eat up stall space clock time and too often end up being unprofitable. I have calculated average customer pay jobs from 12 hours to almost 20 hours at various shops, which tells the story of the output issues. At the measly labor rates collision is being paid in most areas, size does matter so to speak. In this case, aggressively attracting a mix of smaller jobs is the smart move.
Dealer parts departments essentially thrive or otherwise at the mercy of their internal service and collision customers. Since the only real gross profit parts departments enjoy originates from the mechanical side (wholesale has become a sad affair – if not for factory gift money, it would not exist at the current structures), how well these entities are managed determines the ultimate fate of the parts net. Taking care of the producing labor force (techs) should be job one, including parts delivery to the stall when possible by “parts professionals” assigned to these vital departments. Today’s directors have to aggressively supervise inter-department relationships starting with themselves – it’s just not an option anymore – all for one, one for all, nothing less. In-fighting creates a no-win situation.
I have developed a nifty forecasting and study tool for you to see the impacts of managing the little things in your fixed ops department. It’s a four-tab Excel workbook with most of the work (formula and structure) done for you. For a copy, email Ed@NetProfitGroup.com with the subject line “Forecasting Fixed Ops-Gimme a Black Eye.” You will likely find that the little things are in fact the big things .
Author: Ed Kovalchick
Ed Kovalchick is the CEO and founder of Net Profit Inc., Alabaster, AL, an international fixed operation consulting and training firm located in Alabaster AL. Mr. Kovalchick and his firm have assisted hundreds of dealers and manufacturers, and conducted workshops throughout the world for thousands of students since 1979. He has written columns for Dealer Magazine since its inception.