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So there's this article by Michael Wayland on CNBC.com titled Coronavirus Pushes Auto Dealers to Embrace Online Sales like Tesla and Carvana. One of the key points is that US auto dealers have been slow to embrace online sales, however the Coronavirus is changing that.
I don't agree with that. I don't think that dealers have been slow. You have, let's say, 18,000 dealers in the US and 7,000 dealers in Canada. With that many dealers, you're going to have the losers and you're going to have the winners, but you also have to think about the average dealer and the market they're in.
Not all the markets want to buy online. If you're in LA, yeah, you're going to have more people online than if you're in Pocatello, Idaho. In Pocatello, people come down and are like, “Jim, what are you doing for F150s this month? It's time for me to get a new one.”
You can't take a wide brush across everything, and that’s really the theme for this episode. For the most part, I think that dealers have embraced online sales, but the consumers haven't. What we're really not talking about is how consumers' trust for dealerships is the problem, not online sales.
Once again, I think this is another case of a reporter getting it wrong because he's probably not a car guy.
Jeremy brings up a great point about the car-buying process on the show: a car is a tangible asset that you want to touch and feel. However, the more we can get the customer to drive service sales digitally, that's going to increase sales overall, because that's what consumers want right now.
Look at this Coronavirus shutdown right now. Restaurants are still open, but only the ones that do take-out or delivery through a phone call or online. Anyone else that didn't already have the infrastructure in place to go digital had to close down.
An online landscape is something everyone should be adapting to right now. This is absolutely true. This Coronavirus came out of left field for most people, and their businesses are hurting because they weren’t prepared for that transition to online sales.
But again, it's not the same across the board. We want to make things simple – we want the magic pill – but the truth of the matter is that Carvana and Tesla are different from the traditional dealerships, because they go directly to the consumer.
But don’t get me wrong. It's not that dealers don't want to be more progressive and get ahead in the digital marketplace… It's that they're gridlocked by the manufacturers who dictate the entire presentation and layout of the website. If you have a Toyota dealership, Toyota corporate controls what kind of cookie cutter website you have.
I think that this important fact is one thing that you're missing in this article, Mr. Wayland. This is one of those situations where the manufacturers are holding back the dealerships….
And I don't think the manufacturers are intentionally doing it, either! There's always the risk of that one moron dealer who would build a terrible website, and it only makes sense that the manufacturer is trying to protect their brand.
Back when I was running Crevier, we were the second dealer in the country to do Google pay-per-click, and we used to think that we needed to redo our website every 3-6 months to have a new look, but then BMW would come in and say, “No, the only websites you can have are the ones from this web-hosting company because it's part of the dealer agreement and that's how it has to be.”
I remember one time we launched the new website with a black background, and they said, “Only porn sites are black. Your website has to be white.”
Never in a million years would I have ever made that connection… I just knew that we were selling a lot of cars off of a black website! Nobody else had ever said that it was mistaken for porn, but whatever.
I had a great team at Crevier, but the reason we sold so many cars online back then is because we looked at online sales as an away-from-the-showroom experience. We thought, “Hey, if someone goes online and they want to buy a car, they don't want to come into the showroom,” so it was crucial that the first email would bring the showroom experience to them – the attention to detail with the copy in the emails, the pictures we would send them…. With every single element of our digital marketing, we were trying to sell them on the idea that it was hassle-free and we could bring the car to them to test drive if they wanted.
Our gross profits from online sales back then were higher than the floor, and it proves a point:
If you sell an away-from-the-showroom experience and treat the customer in a way that's not transactional, but shows that you appreciate their time, you can pick up some gross.
We were delivering the buying experience exactly how the client wanted it, and they were buying from us instead of just being sold. There's a huge difference! It's about matching the customer's preferred communication style, whether they're 19 years old or 79.
A key point Wayland makes in the article that I do agree with, though, is that online sales is one of the last chances for salvation for some dealers that have had to close their showrooms due to the pandemic, and JD Powers expects US retail sales to drop 80% this month.
But does that mean those of us that are still surviving can just rest on our laurels? Nope. There's a lot of pent-up desire from customers waiting to buy brand new cars right now, and the floodgates are gonna open the moment this thing gets lifted, mark my words.
With that craziness out of the way, we got some questions answered on the show via Zoom, because social distancing can't stop the Service Drive Revolution!!
“In your episode about the fourth labor type, you said that in order to get a true hours-per-RO, divide labor dollars by number of ROs and then divide by current ELR. With an ELR of 94.28, that math produces 2.46 hours per RO. When I calculate the normal way with MTD numbers, I also get 2.46 hours per RO. My door rate is $119. Is there a benefit or reason for calculating it one way or the other? Thanks, Chris.”
So if I understand the question, you're asking whether you should calculate hours per RO using the posted labor rate or the effective labor rate, right?
Let's get something out of the way: what does “posted labor rate” mean?
In California, that's just being Bureau of Automotive Repair-compliant…
… which means nothing. It's a target rate.
The only thing that really matters is effective labor rate. So, if you want the true measurement of what you're averaging per repair order, use the true measurement of effective labor rate. If you have a pricing strategy, and you're in our coaching program, your effective labor rate might be a little higher than your posted labor rate but, if not, I've seen a gap of $80 between posted and effective labor rate.
If your door rate is $119, but you're generating $94, that's way too big of a gap. You should have literally no more than 5% slippage as the absolute max.
What's happening here is, you don't have a pricing strategy and the Service Advisors probably aren't selling the stuff that they should be selling. You definitely need our coaching program or our OnDemand Training, and we'll help you with that!
The true measurement to me – the real way to do it – is to use your ELR, because that's really what you're collecting, and that gives you a truer number.
This next question is more of a comment than a question but here it goes:
“Chris, as much as I love your videos and podcast, let's be honest: we don't want to risk our lives to increase RO count. Maybe the best thing during this time is a couple of cars a day and less than half of the techs. I am in the epicenter of the pandemic. I do not want to increase ROs. Give me a video where you are telling the owners to pay their Technicians and Service Advisors and parts specialists extra during days off, not this.”
This one was from Willie on YouTube and first of all, Willie, I don't want to assume in any way what you're going through and how you feel.
That being said, I think if you listened to that live episode again, you would hear me telling you not to make light of this and to be very, very careful, and that our people's safety should be priority #1, right?
I mean that from my heart. I really do.
The thing you have to understand is, we're putting on a show here. I don't think you guys want to hear me come on the show and talk about the people we know that have been sick or people that have passed away, companies that are going under, restaurant owners that are going out of business, or trouble in our own businesses. I don't think that's what you're tuning in for.
I think our role in this is to try to shine a light on the positive side.
The other thing I would say is, no dealership or shop across this country is in the same situation. For you to ask me to tell everybody to do one thing, like paying their people extra and writing only two ROs a day, is asking me to give way too broad advice. I might as well be taking a wide brush to everything, like Michael Wayland did in that article earlier.
People are going out of business. I can't walk a day in everybody's shoes all at once. If a client comes to me with their financial statements, their cashflow, and their sales numbers, I can come up with an individualized plan for them, but you can't assume that dealers everywhere have enough money to go four months without selling a car while giving extra PTO to their Service Advisors, Technicians, and Parts Specialists! That's nuts!
I definitely sympathize with every business that’s going through a tough time right now, but you really have to understand the dynamic of a car dealership and how much money is in that inventory that you're paying flooring on. You have $10 million worth of cars, but no chance to sell them. That means you have no income except for service and parts, which is an essential business.
I'm sorry you're having a hard time. I feel for you, and we're in this together, but this isn’t such a simple thing to talk about. You can't just come at this with the broad opinion that everyone should be writing two ROs a day and swallow the cost of PTO. You've got to be careful, especially now.
Let's not look at this from just our point of view. We've got to look at this from everybody's point POV: the dealer, the President of the Auto Group, the independent shop owner, the Technician, the Service Advisor, the Service Manager, the Parts Department, the Porters, the Salespeople. Salespeople have been furloughed and with no income! You don't know what their bills are! I have people that work for me that make over $100,000 a year, so if I furlough them or lay them off, they can't claim anything.
Now what if their mortgage is $4000? Then they can't afford food!
It's a complicated thing and everybody's situation is different, so what we have to do is show empathy for each other.
Willie, I don't want to end this on a sour note and I understand you're reacting to a hard time. But if you listen, you'll know that you can only control what you can control. That's it.
But that's why your comment was important, so you definitely deserve some Service Drive Revolution swag for that.
Thanks everybody for reading, watching, and listening. I hope we inspired some thoughts and ideas. Remember to put your head down, take the good with the bad and we'll all get through this together.
See you all next time