Before we go into the topic of today's show, we have an interesting development:
So Jeremy ordered parts from a Ford dealer that wasn't named on the show, but you could draw a circle around his shop and maybe figure out. They're up in the high desert and they generally don't use any of the high desert dealerships for parts because they mark the parts up 20% over list and then give their discount, so you're still basically paying list price. He calls up his favorite Ford dealership and says, “Hey, I need a body control module for this car. Can you get it out on the morning run?”
“Yup, it'll be there.”
1 o'clock the next day, he's like, “Where the heck is that body control module?” He gets the parts guy on the phone…
“It's Jeremy from Freedom Auto Repair. You've got the body control module for me.”
You literally hear papers shuffle and then, “Oh, yeah. Here it is. Did you want that? I'll get it out on the afternoon run.”
Now, we get a lot of comments from part managers that don't appreciate the sentiment that they're secretly conspiring against Jeremy, but I will say maybe check your stock and fill an order instead of typing in comments…
So there was a piece on 60 Minutes about driverless trucks. I did a profile of this company and driverless semis are already out there. This company just has them out there and people are upset because they didn't already know. It's interesting too because every objection that truck drivers have for it is actually a benefit because it doesn't text, drive drunk, or fall asleep at the wheel; it can go 24 hours a day. The only human interaction it needs is for somebody to fuel it, and the system can be retrofitted onto Freightliner, International, everything else.
They say automation is the most disruptive thing for an industry. It's been a long time since we thought of Uber being disruptive to cabs and Airbnb with hotels, but you're talking about millions of jobs for truck drivers that would go away. They're already out there. You'd think that they were waiting to pass a law, but the department of transportation's already allowing them to do it!
Things are changing so fast! It's exciting to see how much technology progresses every hundred years. Like, maybe a hundred years from now, we can put on a set of glasses and go to another world or whatever. I was listening to a book about that, and about sex robots. Can you believe, in other countries where they have sex robots, they've found out that it's not about the sex? The people are really lonely and they fall in love with the robots.
I love this one podcast by this MIT guy, Lex. Most of it is centered around AI, but on one of the episodes, they were talking about how, at MIT, they had a vacuum cleaner that was one of those remote vacuum cleaners, and whenever it hits something, it would make a sound like it was hurt. That endeared people to it because it showed pain. That's how the sex robots are, too. If the robot shows vulnerability or pain, which are the most core human trigger reactions, then you feel for it.
So enough of having sex with robots, let's hear questions from the audience this week. Remember, if you post a question on YouTube, LinkedIn, Facebook, and we read it on the big show, we'll send you some swag; T-shirt, coffee mug, maybe a little handwritten note from Jeremy, a little love letter…
“Hello, I love the podcast and all the info you give. I work in a small four-bay independent shop. My question is that the shop owner is concerned that gross parts is more than gross labor. He said it should be 60/40 labor over parts. I did inform him that some of the parts costs are going up and some of the dealer parts we get are more expensive than the labor to put them in. Is this okay, or are we just doing something wrong? Thank you!”
This is why Jeremy bought a shop four years ago. As a shop owner (and parts hater), parts revenue or parts profit is not in his equation. His focus is driving 100% of his profits through labor sales. If he hits his labor targets, it doesn't matter what happens with parts because he's made the revenue and profits that he needed with his talent pool. Not only that, but in Jeremy's vision of the future, there will be a day where the customer will print their own part and have it delivered to them. Parts will be replaced by 3D priners and delivery companies that are on time.
The interesting thing about this to me – and I've done a bunch of strategy sessions with independent shops, and this might be the wrong question – is how, with my basis of knowledge coming from the dealer side, you don't understand that the independent shops mark it up more than what you would sell it for. Sometimes, they hold more gross than you would on the dealer side even though you bought it from them! There's not a big connection between what the independents sell the part for and the customer's perception, if you focus on the customer experience. The healthiest shops are the ones that are holding gross – they're holding 40% gross on the parts – even after they buy it from the dealer, which is hilarious. So it's more about the customer experience than it is the part price.
In the question, the 60/40 is on gross so if you have $100 in revenue, $60 of it comes from labor and $40 of it comes from parts. That's a good starting point. In the independent world, it's always been a 1:1 ratio so half of your revenue comes from labor, the other half comes from parts.
If I've done 30 strategy sessions with independent shops, maybe three of them would know what their effective labor rate is. Also, they dont' understand that because their techs aren't flat rate, that their cost of labor's $60 and they think it's $30. Most of the time, they'll say, “Oh, it's my effective labor. It's 120.”
And I'm like, “No, that's your posted labor rate.”
It's like debating proficiency and efficiency. It's interesting. To answer the question, I don't think the owner's too far off. Remember though, as an advisor, the objection to the price is the quality of service that you're giving, and the customer's trust and perception of what you're doing, not where you set the price. I see independent shops all the time that are making more money on their parts than their labor after they figure out what their effective is.
“Hello, Chris. I'm a service advisor at a Honda dealership in the LA area. I currently reach about 45k to 65k sales profit for two weeks. What I noticed myself struggle with at times is being consistent in offering maintenance and keeping my CSI above 91.7%. As you may or may not know, Honda service has a minder code that illuminates on the gauge cluster. I believe, in my mind, I sell from the customer's pocket and prejudge. I've been told I care too much. What will your advice be for me to obtain and increase my numbers and being more consistent?”
That's a great segue into our topic today:
Do you deviate from the manufacturer's recommended maintenance schedule?
I think what happens with a lot of advisors is that they have this weird moral compass where they believe their view and morality on maintenance is correct, and anything that deviates from that is incorrect. They're not aware of the theory that preventative maintenance prevents repairs.
So it's a complicated question, and I always say, “If you wouldn't sell it to your mom, don't sell it.” I didn't say, “If it's not recommended by the manufacturer,” because I know that they think, or want, or hope that at 100,000 miles a car is put into the crusher and the customer starts over again. I know beyond a shadow of a doubt with many manufacturers that there's no recommendation for power steering fluid, and power steering racks go like crazy! There's literally chunks of metal in there!
I know that even though they will spend tons of money cleaning valves that there's no recommendation for injector services for manufacturers. They secretly have it, though. BMW makes one, but they have a terrible problem with their turbos and they secretly recommend that you do it every 12 months or 12,000 miles. However, they don't want it to be included in their old maintenance program. It's a really, really evil thing at the end of the day…
This is a very difficult question to answer, but the thing that I would say to you as an advisor is to get over this fake morality thing and really go to work on figuring it out; talk to technicians, look at brake fluid, really get educated, cause every manufacturer's a little bit different. They don't even use the same power steering fluid. Same thing with transmissions. Some of them don't' want you to ever service the transmission because they'd rather replace it.
The thing that sold me was, I had a shop foreman tear the top of an engine off and show it to me, put it back on, do an induction service, and then take it back off and show me. Literally, customers would say it drives like it's new again. That was the comment I heard over and over again, so I don't trust anybody, including the manufacturers. I try to get involved, try to see for myself, I take a used car and do the induction. I'll pay a foreman to take the top off and take pictures and do a little show and tell for all the advisors. I pretend like it's my mom, and what would I advise her to do?
The other thing in your advisor training that's so good is you want to learn what the customer's plans are. Don't shortcut that either! If the customer has a three-year lease and they're trading it in, I don't know that you're selling them a bunch of stuff right before they trade in, right?
I'll tell you beyond a shadow of a doubt that, in my experience – and I've had people object to this in the beginning – when I've had them take the top off and do an induction, put it back together, do an induction, and take it off again, every tech and every foreman agreed. I'd also have them drive it before. Fuel services are a huge benefit to the customers; they improve gas, mileage, performance, everything, and a lot of customers will say two years in, “Oh, it doesn't drive like it's new anymore…”
I would get educated on that and not assume that it's snake oil. I find that, on the turbos, the induction is a way better value to the customer than the injector service, but that depends on the engine and the model. As an advisor, don't assume anything. Go to work! It's a journey, not a destination. Be ethical, but don't assume that you're the moral compass for anything unless you're a scientist and you can dip your finger in the brake fluid and taste it.