The Sales-to-Service-to-Sales Ecosystem Has a Defection Problem
The Sales-to-Service-to-Sales Ecosystem Has a Defection Problem
A Blog Post by Sean Reyes, Chief Marketing Officer for Recall Masters
Sell more cars and you’ll service more cars. And, when you service more cars, you’ll sell more cars. The vehicle sales and servicing ecosystem is the revenue lifeblood dealerships have been relying on for decades. But customer defection is causing an imbalance to the ying and yang of dealership operations. If we’re not servicing as many cars, we’ll undoubtedly sell fewer cars. Brand loyalty has dipped to an all-time low and lead conversion is at pathetic rates – what can dealers do to revitalize the unquestionable benefits between the front of the house and the back?
Service defection from dealerships didn’t happen overnight. In fact, it was only until the Cox Automotive 2023 Service Industry that dealers were the preferred provider for vehicle repair. The $400 billion-a-year vehicle maintenance industry has a new reigning champion – independent repair shops. This not only puts a knife in the dealer win streak, but signals significant losses for fixed operations and the lead generation engine fueling new vehicle sales. How did we get here?
It’s almost impossible to isolate a single cause of dealer defection, but most would agree on the timing – right around the time that the new vehicle falls out of warranty and funding repair costs will come from the customer’s wallet. While every dealer smiles at the thought of more Customer Pay (CP) revenue, it comes with heavy competition for customers who are shopping aftermarket providers for what they perceive as better pricing, more prompt service, proximity, convenient hours and the relationship with a small business owner. It’s not always true, but perception might as well be reality when talking about consumer trends. So what about the value of factory-trained technicians and factory-authorized parts?
Consumer studies acknowledge that dealer technicians are more skilled with specific makes, but it’s a long road back once they’ve experimented with the aftermarket. Dealers are selling 100% of the new cars, but only about 8% of the replacement tires, which usually marks the first time that consumers begin shopping aftermarket providers. It coincidentally happens right about the time that the warranty expires. While tires are not covered under warranty, the 40K to 60K mileage range also presents opportunities for services like brakes, fluids, flushes, bulbs, etc. – light work ideally suited for the aftermarket and priced well below what dealers often charge. When schedule service weeks out or don’t offer tires, we almost invite consumers to explore the retail market.
Tire shops are just the starting point. Once the consumer has serviced in the aftermarket, the affinity for a dealership relationship, asset protection and brand loyalty drops like a rock. Right to Repair Laws and vehicle diagnostics make it much easier for independent repair shops to offer comparable services in the eyes of the consumer. You and I know the true value of factory-trained technicians and factory-authorized parts, but we need to understand that the average consumer is weighing out more than these two variables. It explains why so many dealers are contemplating their tire strategy in hopes of delaying that defection timeline. We need to go deeper than tires.
The technician shortage isn’t helping. Service departments at dealerships are scheduling out about 3 weeks, on average. Call your local independent repair shop and they’ll see you within the next 24 hours. Sure, they’re busy too, but without the same requirements for techs and parts, they can move vehicles much faster. I’m not suggesting that we abandon models for quality that encompass dealership service. Quite to contrary – we need to leverage these strengths while also acknowledging that the average consumer is not going to wait 3 weeks for an appointment and another five days for a part. And, when they do wait, are we offering a competitive price, delivering an exceptional service experience and being transparent about the recommendations our service advisors offer? The service amenities at a dealership dwarf that offered in the waiting room at an independent shop. Still, if you think a fresh batch of magazines, a coffee bar and free WiFi in a posh waiting room are enough to sway the masses, you’re mistaken.
Are we just in an undesirable economic cycle where dealers are at a disadvantage? It’s certainly possible, but not likely because defection isn’t about price – it’s about “perceived” value and a few other factors. At the end of the day, if you had to isolate defection to a singular factor, it would be “trust.” Losing trust happens in the blink of an eye – earning it takes an eternity. Dealers can win on trust and, over time, take back the vehicle servicing throne, but only if we’re consistently treating our customers with respect, being transparent in every transaction and creating efficient processes that promptly delivery beyond their expectations. Why trust?
Dealers are the only authorized service centers to remedy a dangerous recall of a specific make. While dangerous recalls can manifest anxiety in most owners, it’s also a dealership’s opportunity to be a beacon of safety for the community, reignite relationships with lost and lapsed customers, invite 2nd/3rd/4th generation owners to your dealership, reinforce trust with existing customers and welcome new residents who have no established relationship with a local dealer – all without requiring the consumer to open their wallet. Stay on top of your factory warranty reimbursement and recalls can be as profitable is other CP work.
You have to show recall customers a heightened state of service. With the exception of car enthusiasts who love to dress up their vehicles with accessories or visit a car wash, most consumers despise putting money into their car. A recall is different, not only because it’s about safety, but because the consumer doesn’t have to pay for the recall repair. The opportunity to reintroduce your store to consumers who may have given up on you through a recall repair is a golden moment to win them back from the aftermarket. Conversely, if you don’t safeguard consumers, then imagine how they perceive your dealership.
It’s happening every day in dealerships across the nation – vehicles in the service drive that aren’t being checked for a recall, parts not available to repair a recall, pushing owners off for a service appointment three weeks from now, etc. If your 10-year-old child was sitting in the passenger seat of a vehicle with a recalled Takata airbag, does 3 weeks sound like the dealership cares about you? That’s how we need to begin looking at recalls – through the eyes of a consumer who has servicing choices. Maybe they don’t have a choice about a recall repair, but they certainly have a choice of providers for a future brake job.
Let’s take a step back and remind ourselves what’s at stake. With tighter and tighter margins in vehicle sales, dealers have relied on fixed operations to make up ground and help reduce customer acquisition costs that ultimately feed back into the sales side of the dealership. At NADA 2024, I sat in the audience to hear Sanjiv Yajnik of Capital One financing talk about the abysmal conversion rates for new car sales leads. Of the 100% of consumers who are defined as a “new vehicle sales lead” within a calendar year, only 6% will go on to purchase a vehicle. Ouch! Whether you are purchasing these leads or generating them on your own, they are never free. However, if they are actively servicing with you, they are 74% more likely to purchase their next vehicle from you.
With sales conversion stats like that, it’s no wonder we’re all looking at the retention effort. Well beyond the warranty period, your dealership needs to demonstrate servicing value with customers through recall management, retention solutions, free car washes, mobile servicing, low-cost servicing, tire promotions, periodic service specials, service transparency and a dozen other tactics that remind consumers why franchise dealerships exist. When EVs arrive in full force, the service intervals will be further spaced out, though the recalls will likely increase, with about 38% of them requiring some kind of technician intervention. Let’s right the ship and embrace the challenge to win back our rightful position on the podium – as the consumer’s preferred service provider.
About the Author
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Sean Reyes oversees all marketing efforts at Recall Masters as Chief Marketing Officer. Sean’s experience spans more than 35 years of business development and strategic marketing experience, having developed go-to-market products and solutions for the automotive, healthcare, insurance, finance and technology industries to serve Fortune 1000 clients like American Express, Toshiba, Western Digital, Cox Communications, Novartis, Microsoft, IBM, Compaq, HP, National General Insurance, MyCustomer Data, DigniFi and several automotive affiliates and dealerships. Sean lives in Napa, CA with his wife Kathryn and spends his free time hiking, kayaking, playing guitar, going to concerts, rebuilding project cars and helping his kids embark on adulthood. |
