The objective for dealerships is profitable growth. All the things that dealers manage every day — customer interactions, vehicle inventories, CSI scores, training, facilities, retention, factory relations and many more — are to achieve this key goal — profitable growth.

In an effort to shield their business from the impact of ongoing margin compression and a flattening automotive retail market, a growing number of dealerships are shifting their focus to fixed operations as both a profit center and an effective tool for loyalty and retention.

Signaling the profitability opportunity in fixed operations, NADA’s annual Dealer Financial Profile research found that the service department now makes up 49 percent of a dealership’s gross profit — a marked shift from 45 percent in 2012. Not only does the service department drive nearly half of all dealership gross profit, but it also is critical to increasing customer loyalty and ensuring lifelong customers. In fact, according to Cox Automotive Inc.’s 2018 Service Industry Study, 74 percent of customers who visited the dealership in the last 12 months for service are likely to return to purchase their next vehicle — a stark contrast to only 35 percent of customers who did not visit for service.

The takeaway here? By retaining customers in the service department, dealerships not only increase profitability in their fixed operations business, but also see a rise in loyalty when it comes time to buy a new vehicle. With customer acquisition costing $629 per new vehicle sold, according to NADA Data 2017, it pays (literally) to shift the conversation from acquisition to retention.

So, how can dealerships make this strategic shift? First, dealerships need to understand the changing customer base. Today, millennials account for a large share of new vehicle sales — an estimated 40 percent by 2020 according to the Autotrader Next Generation Car Buyer Study.

Also changing are customer expectations. According to the 2016 Xtime Market Research Study, dealership management sees higher customer expectations as the biggest factor impacting service operations. Their intuition is right — with easy ordering, real-time tracking and delivering directly to your doorstep, companies like Domino’s, Uber and Amazon have set the gold standard for customer experience across verticals, pushing dealerships to follow suit if they want to secure lifetime customers.

As a result, when a customer walks through the service doors, they are expecting more than just a fixed vehicle. They want a positive interpersonal experience, easy scheduling, prompt turnaround, fair and transparent pricing, and a splash of amenities like a coffee bar, Wi-Fi and manicure station.

So, it’s time to follow the example of many other companies that have created a great experience for consumers by removing friction from their processes and delivering a mobile-enabled, technology-enhanced experience.

Now, apply this to the service department. As stated previously, a technology-enhanced customer experience is key, with the use of tablets and text updates as well as access to online scheduling and cost estimates critical to enhancing the service experience. Despite this, a 2016 analysis of survey data from J.D. Power and Associates and McGraw Hill Financial found that only 28 percent of dealers use tablets for service.

Furthermore, 45 percent of consumers not scheduling online did not know if their providers offered this service, according to the 2016 Cox Automotive Maintenance & Repair Study. These numbers don’t match up, offering dealerships an opportunity to step up to the plate, enhance their customer experience and invest in the right technology to differentiate themselves from the competition.

Dealers also need to create a seamless customer service experience throughout the entire vehicle ownership lifecycle. The 2017 Xtime Market Research Study found a 2.3 times increase in customer return rate when introducing the customer to the service department at the time of purchase. As a result, it’s integral that the sales and service departments work in sync rather than separately from one another to ensure customer satisfaction and awareness of service capabilities from day one.

The opportunity in fixed operations is undeniable, with the customer experience leading to much more than just increased profitability in the service department. That differentiated experience is what will ultimately lead to additional vehicle sales, lifelong customers and the ultimate goal — profitable growth.

Don’t miss Jim’s session, “Turn One-Time Visitors Into Lifetime Customers” at DD25 on Tuesday, October 16, 2018! Improve customer retention and reshape the typical dealer experience.