Friday, September 17, 2010

What You Don’t Know Really Can Hurt You – How Right to Repair Is Wrong For Our Customers

We need to think about this one a bit. AAIA’s premise is that customers should be able to choose who they go to for repair. Well, they do that today. But, more than the right to choose, the “Right to Repair” coalition thinks that the independents should have the right to cherry pick among billions of dollars of OEM investments and assets while not having to toe the line in terms of enterprise quality and systemic quality process management. This is remarkable and absurd – seems to be a mixture of communist joint property ownership and process anarchy. Rather than intellectualize how dangerous this is, let’s tell a story. What follows is a series of events (some are made-up composites, others are real composites) that paint a bleak picture of what can happen in the market today. Our OEMs are lock-jawed and narrowly focused on doing what is right for the customer, but not talking much about it. Our dealers are complacent and generally do not understand how to merchandise, market, and inform customers about their fixed operations. The independent aftermarket is an unregulated and largely unmanaged industry fully capable of profound and catastrophic failures. And, our customers range from misinformed to uninformed. Passing right to repair legislation does not even come a fractional step closer to fixing all this.

Customer, call him John Doe, goes to Joe’s Service shop down the street to get the brakes fixed on his kid’s car. It’s the third car in the fleet; old and the latest hand-me-down. Everybody knows that dealers are the last place you go because they are so expensive – so, Joe’s is a completely logical choice. Heck, John Doe’s kid, Mary, is paying for half the repair, so the repair’s got to be cheap. Called the dealer just to make sure they were priced out of the market – it took a few minutes on the phone, holding while listening to somebody else’s music, and, at the end of all this, the price seemed high. Besides, the dealer didn’t seem all that interested in the business. Dropped the car off at Joe’s. He said he might get to it this week, but he’d call when he could get to it and to talk about how much it would cost. Couldn’t hold him to his estimate – it’s a pretty old car and he didn’t know what he’d find. Seems like a nice guy who knows what he’s doing.

That’s what the customer hears and sees. Here’s what he didn’t see or hear.

The Dealer Service Advisor (SA) answers the phone and a customer wants a price for brakes on a pretty old car. It’s John Doe. The SA doesn’t know him, but he does know that the rotors are going to be shot and can’t be turned and still have any safety margin left. Almost immediately he knows from his on-line flat rate manual how long it’s going to take. His shop has a huge investment in tools, lift capacity, customer parking, diagnostic equipment, customer convenience services, staff, and technician training & certification – it’s all amortized in the labor rate. Actually, it’s the dealer General Manager who really knows all this; the SA takes it all for granted – he’s not been trained to sell what you get for that hour. So, he says nothing. But, he’s pretty smart – he won’t tell that customer on the phone what he’s going to charge per hour. He knows it’s high compared to the independent shops – maybe 15% high. The SA doesn’t know that at 15% all that stuff’s a bargain. The SA gets a lot of calls, so he’s learned to be as fast as possible – after all, he’s got all those folks showing up at the counter each day. So, he calls the parts department and gets prices for the brake parts. The parts department gets a lot of calls, too. They just look it up in their DMS and tell the SA the retail price of Genuine parts. They sell Genuine parts, because they know that they are the best. They fit better. They install quicker. They are higher quality. And, they are guaranteed – parts and labor guaranteed. The SA and parts manger know all this, but, it would take too long to tell that customer all this on the phone. So, it never gets mentioned. After a few minutes the SA takes Mr. Doe off hold and tells him the price of everything – all in one lump sum. The SA knows this is an exercise in futility – closing rates on phone quotes is dismal. So, he yawns when he gives the price. Mr. Doe says “thanks”, and the SA knows that this dog won’t hunt. Oh well.

Meanwhile back at the OEM, Service Operations work continues with data mining and problem resolutions to improve how vehicles are cared for and serviced by dealers. New diagnostic equipment is developed and new diagnostic solutions are programmed. New and improved parts engineering for existing parts results in parts supersessions – so, new parts, better parts, are released and managed throughout the supply chain. Technical Service Bulletins (TSBs) are developed that will help dealers’ service technicians with repairs – new ways to save repair time, improve quality, and increase safety. Some of these TSBs relate to those old superseded parts; others relate to the replacement parts. New tools are developed that do better jobs and save time for specific applications. Lots of time is invested in maintaining flat rate labor standards that reflect all this. A fairly large group of staff are focused on dealer technical training and certification. It is important to be technically competent when repairing a motor vehicle. Another staff group is at a call center and gives parts and service hotline repair advice – they give a lot more than advice; they solve unforeseen problems. Service Operations staff are also involved in managing warranty operations and disbursements; this is serious stuff because of parts and labor guarantees that the OEM stands behind. More than that, it provides a huge database of information on how well parts, systems, and processes are working … so, if they are not working well enough, they can be improved. It’s really a team effort. OEM purchasing tests parts and works with suppliers to make sure they are making what is specified … if they do not, they can be delisted and lose the business. OEM supply chain management makes sure the parts get from the suppliers to the dealers in pristine condition. They also collect returned parts and warranty parts for testing. All this costs a huge amount of money; Service Operations is a cost center. These costs are amortized in the cost of Genuine parts. But John Doe hasn’t got a clue all this is going on.

Joe’s Service gets his parts from Manny’s Auto Parts, gray market suppliers, and a dogs-breath of other places. Some of these guys give him bottles of Seagram’s at Christmas. Well, the ones who count do. The gray market suppliers get their parts from dealers all around the world … when dealers can’t return a part to the OEM (it might have been superseded or damaged) they can sell it to the bottom-feeders … who proudly display the OEM label and call it Genuine. Well, it’s not … it’s a junk part. Manny gets his parts from a whole bunch of other suppliers. They come in and buy everything in a brand’s line (like brake parts and rotors), junk it, or sell it to bottom-feeders in another country, and sell Manny their stuff. Manny doesn’t care. He’s in the business of selling parts and making money... and getting bottles of Seagram’s at Christmas from his suppliers. The stuff he buys can be sold under the price of the real Genuine part, because these manufacturers don’t have all the quality management costs that the OEMs have. If the stuff Manny buys doesn’t work, he sends it back and no questions are asked. Some of Manny’s suppliers get their stuff from third-world emerging markets. It’s reverse engineered and looks like the real thing. Some industry groups and third parties proclaim that reverse engineering can result in a better-than-Genuine part – Manny uses this line when he talks to his customers. The differences are subtle, the content might be degraded, and the overall quality is more a function of serendipity than rigorous QC. But, it’s cheap. Manny’s latest brake short-line is GoodEnuf Brakes. Manny stands behind it – hasn’t a clue of what he’s standing behind, but he does this nevertheless. The salesman is a nice guy and gives him bottles of Seagram’s.

GoodEnuf Brakes is a small company, but they strongly support their independent aftermarket trade association. Sends them good sized checks to help break the OEM stranglehold on a broad array of diagnostic and technical repair information – right to repair stuff. The trade association hires lobbyists to craft “friendly” legislation at the state and federal levels. The trade association also makes political contributions to friendly legislators. It takes a lot of money and patience to change the laws of the land and buy some good old American justice for their clients.

Jim Straightlace is the CEO of an OEM and he’s under a lot of pressure to cut costs. The media’s been ripping him apart for his lobbying costs. He finally caved and cut this line item. It’s just too difficult to explain it to the media, shareholders, institutional investors, and government watchdogs. Hell, his kids read the newspapers (on-line) and have been ribbing him every chance they get.

Joe at Joe’s Service is a nice guy and just trying to make a living. His niece wrote up some really nice reviews for him on the internet, so he’s 5-star rated at some websites. His shop is small and usually pretty dirty; there’s no waiting room and the customer parking lot also displays wrecks and used cars that Joe sells on the side. Joe was not very good at book learning; he got his degree at the U of Hard Knocks. He derides dealers and the big shops as being “big business.” He doesn’t have a budget for a lot more tools, the most modern state-of-the-art diagnostic equipment, technician training, fancy waiting rooms, coffee and doughnuts for customers, loaner cars, shuttle service, service advisors, and technical hotline support. He really doesn’t do all the work, either. He’s got a helper. Kid can’t read or write too well; doesn’t talk much either. That’s OK. No “big business” rules tell Joe who to hire or what to do. Kid does what he’s told and fixing brakes is a breeze. Kid can ask Old Joe if he gets into trouble. Joe generally understands what the kid is saying. Mr. Doe comes in and wants his little girl’s car brakes fixed. Joe said he might get to it this week, but, he’d call when he could get to it and to talk about how much it would cost. Said to Mr. Doe that he couldn’t hold him to his estimate – it’s a pretty old car and he didn’t know what he’d find. Throws the keys to the kid and tells him, sort of, what to do. Kid finally brings the car in puts it on a lift and removes the brakes and rotors. They’re shot. Kid doesn’t check the VIN; doesn’t see if there are any TSBs, supersessions, or recalls by calling a local dealer. Remember, talking is not his specialty. So, he calls Manny’s and barks out an order for the parts he needs. He simply ain’t got too many words. Manny sends over cheap brake parts he’s lucky enough to have in stock from his latest short-line emerging market supplier. GoodEnuf it says on the box. The installation instructions are comical in their brevity and lack of utility. No matter. The kid can’t read too good. The kid’s pretty good with a hammer, and will try anything to get all the parts in the package used in the job. Well, most of the parts, anyway. Besides, the brake parts don’t fit too well and it takes a lot longer to replace them than Joe thought. Joe calls Mr. Doe and tells him that there was a lot of rust and they had to be extra careful not to damage the wheel bearings during the job. That always works. That’s why it cost so much. Mr. Doe still thinks he got a bargain with Joe’s 15% lower hourly labor rate and using less expensive “high quality” aftermarket parts. After all, don’t they all meet or exceed the OEM spec?

Mr. Doe pick’s up the car and proudly gives it to his little girl, Mary. Just in time for prom night. Mary doesn’t drink. She gives the keys to her date that night. He drives. It rained and the roads are wet. Shortcut back home goes over winding roads. Approaching the curve a little fast. Apply the brakes.
… Well, as Dirty Harry would say, “Do you feel lucky?”

Bottom Line: Our industry would be nuts not to fight right to repair legislation. Joe’s is modeled on some local independent repair facilities (IRFs), so, his story is not an exaggeration. But, he’s certainly not representative of IRF “best” practices – he’s more like a nexus of bad practices. But, that’s not the point. There’s nothing out there stopping “Joe’s Service”, managing “Joe’s Service”, or making sure “Joe’s Service” does it right. Joe can’t lose his franchise if he screws up or underperforms. Right to Repair doesn’t help Joe’s Service do better work – it only gives him, and all the other IRFs, more credibility at somebody else’s capital expense … but with no more responsibility. It is a real bad idea.

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