Monday, November 3, 2008

So, What Do We Need To Fix?

Customers are changing their service locations – well, that’s nothing new. What’s troubling is that they might be switching out faster than we anticipated. A certain amount of this is caused by lower industry replacement sales, causing an older average fleet that has a higher tendency for non-dealer service. But that’s just making ourselves feel good about a bad thing. The reality is that customers are more cost conscious than ever before and the pre-conception that the dealer is the high cost alternative has a lot of momentum.

Checking this out is a simple from/to matrix operation. AutoZone’s sales and profits are up. My theory is that Zone is the “to.” So, maybe customers are walking, and we pretty much know why they are walking. Let’s check the facts. We found from prior NASPC surveys that for a normalized $100 repair order (RO), independent repair facilities (IRFs) have higher parts cost content than dealers. When we examined comparable survey ROs from IRFs and dealers, we found the costs to be within spitting distance of each other (the difference was not statistically significant in our sample). These costs are pretty easy to detect on ROs. The big differences between dealers and IRFs are with labor rates and charges. Dealers generally have higher labor rates than IRFs, and dealer ROs generally have proportionally higher labor content. This makes sense, considering dealer/OEM technician training and diagnostics infrastructure. Dealers have an edge in efficiency; we found that dealers are generally less expensive for all forms of maintenance. The problem is with repair order “optics.” As I said, total costs for a market basket of repair orders shows comparability, yet IRFs seem to have lower published labor rates (20% lower) and make more money on parts. Dealers have signs in the service write-up area broadcasting typical $80-$100 labor rates. Customer satisfaction with labor rates is dead last on the list of all possible sources of friction. We’ve known about this for years, and mostly have done nothing about it. Let me reduce this down to simple common sense. You look at a repair order and see a charge for parts that you have no idea how to value, and you are confused; no basis for comparison. You look at the labor rate and see that it is higher than you might make per hour; higher than what you pay your plumber. Here, you do have a basis for comparison and don’t feel so good. You conclude, wrongly, that dealers are the high cost spread and decide to look for lower cost solutions … what about that shop down the street that charges only $60 an hour? Times are tough, so you decide to “cut back” and not go to your dealer. And, you feel good about making this bad choice. This is a dealer issue. So, how do today’s customers feel about this? Those same folks who have lost 20% of the value of their 401Ks? How about the ones fearing eminent job loss? The ones paying yo-yo gas prices? The ones upside-down on their home equity? The ones now shopping at Wal-Mart instead of Macys? They feel like not going to dealers for service. So, what can we do about this? Funnel our marketing allowances, advertising spend, and some portion of our terms and conditions money (don’t laugh at this – rewarding dealers with a stock order discount when all the choices are daily could be seen as humorous also) into consumer awareness advertising. Educate consumers about what they get from dealers and the facts about what they spend. Of course, this would involve our dealers, which makes it a non-starter for many OEMs.

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