Car dealership finds remedy for ailing service department
Fixed Ops Journal interviewed Butler in April, shortly after he was hired to run the service department of the 55-year-old Honda dealership, one of 31 rooftops owned by Memphis-based Umansky Automotive Group in California, Mississippi, Tennessee, Virginia and Wisconsin belong . In the June issue of BJ, he outlined the challenges he faced and presented a detailed game plan for reviving the ailing department.
Butler also agreed to provide an update on the state of the department in six months. The judgment? A big thumbs up.
“We’ve made great strides,” says Butler of the department, which has 19 service bays and employs 11 line technicians, four express lane technicians (one more than last April), six people in the parts department and four service consultants (one more than before). ).
“The right processes are in place and the numbers are right,” he says. “Besides, everyone is in harmony with each other. This way we have fewer interruptions in communication.”
Butler likes to say numbers don’t lie, and the numbers he quotes tell a compelling story of recovery.
For starters, repair orders have roughly doubled to over 40 from April’s low 20, he says.
“Our goal is 60 to 70 ROs per day and we have the capacity to do that,” he says. “So there’s still room for improvement.”
Additionally, revenue per repair job has nearly tripled to $300 compared to the low $100 when Butler came on board. In addition, the department’s gross revenue from service and parts increased approximately 100 percent from approximately $160,000 per month to approximately $325,000 per month. And net income, which was down at $25,000 a month, is now consistently between $50,000 and $75,000 a month, he says.
Butler digs even deeper into the numbers, noting that the department’s combined effective labor rate (both customer-paid labor and warranty labor) — a measure of the profit a service department makes per hour billed — comes in at a robust $136 located. That’s a 60 percent increase from the department’s effective wage of $85 last April, Butler says.
At the time, Butler found that the department’s “door rates” were dramatically undervalued compared to local competitors, a problem he quickly solved.
“The higher one [effective labor rate] is a healthy indication that our prices are competitive in the marketplace but not so overpriced that we drive customers away,” says Butler, noting that the department routinely prices deals with its competitors. “Today, for most businesses, that cost is around $100 per hour worked. So if your [effective labor rate is] below $100 you lose money.”
The department’s solid absorption rate also increased significantly, from 60 percent to 90 percent. That’s well above the industry average of around 70 percent, he says.
“Our goal is 100 percent, which would mean that the fixed operating costs would cover all of the retailer’s expenses, leaving the sale proceeds as pure profit,” notes Butler.