Monday, December 16, 2013

Retain and Conquer Through Packages

Service retention and customer conquest are top of mind for OEMs and dealers. There’s a good reason why – the aftermarket consistently siphons customers away from dealers once the vehicle warranty or complimentary maintenance period is over. Oftentimes even earlier.

One major driver here is cost. The 2013 Carlisle Consumer Sentiment Survey shows that not only is the aftermarket much better than dealers at providing a reasonable charge for parts and labor, but, more importantly, it is also better at informing customers of the total service cost up front. New vehicle owners’ first service interactions with the dealer typically occur while the vehicle is under warranty or a maintenance plan and the cost of service is obscured

However, once customers begin to pay for service out of their own pockets, they are hit with sticker shock upon receiving their first service quote. No wonder they soon gravitate toward the aftermarket.

Service packages are one way to combat this issue. Packages, or service menu items, have an out-the-door price, including both parts and labor, for a specific service event (e.g., front brake pad replacement) or several service events (e.g., oil change and tire rotation). Service packages are an inherent part of aftermarket business models. Walk into any Jiffy Lube or Midas, or check out the Pep Boys or NTB websites – package prices are displayed for all to see. Sure, these packages often include fine print such as “some vehicles ineligible” or “pricing as low as”, but for the most part, they are used to draw customers into the shop and provide a straightforward menu of options. Customers like the transparency, and even if the final RO turns out to be more expensive than it would have been at the dealer (i.e., because of upselling, vehicle ineligibility, etc.), the customers will never know because they won’t have given the dealer a chance.

OEMs can borrow from this aftermarket strategy to help win back and defend their business. With the proper design, pricing, and marketing, packages can achieve the following:
  1. Transparent pricing
  2. Consistent pricing
Both objectives can increase customer satisfaction. How? Pricing transparency leads to higher levels of customer trust. Customers can shop services and draw apples-to-apples comparisons between dealer offerings and those of the aftermarket. If packages are created correctly, their prices should be consistent within the dealer. Theoretically, every dealer employee should know the package prices and be able to quote them instantly (or after a quick reference). This saves time for the customer, and avoids a situation many OEMs complain of – employees at the same dealer quoting different prices for the same service.

Some progressive dealers already package price their service offerings on their own. However, this is often a daunting process, especially if it has to be done manually. So what can OEMs do? Help dealers design, price, and market packages.

First, many OEMs provide dealers with aftermarket mystery shop data to help them establish competitive price points for their services. More advanced OEMs also provide dealers with tools to help them create and quote packages, especially for factory scheduled and other competitive maintenance services such as oil changes, filter replacements, and brake services. These tools allow a dealer to look up a customer’s vehicle (by VIN or by selecting vehicle specs) and view all the services that should be performed at that time (or even previously declined services), the associated parts and labor units, and the dealer’s pricing. The dealer can then generate a service menu, review it with the customer, and create a final quote by selecting the services the customer has chosen.

Once a dealer has a set menu of package prices, service marketing can be much more efficient and targeted to directly compete with aftermarket service offerings.

Bottom Line: OEMs should take a page out of the aftermarket playbook to win back and retain their service customers. OEMs can help dealers bundle their most competitive services into packages, including both parts and labor, and charge a single out-the-door price. Dealers will be more transparent and consistent in their service pricing, and that will mean more satisfied customers.

Friday, December 6, 2013

2014 Syndicated CSS Gets Into The Heads Of Your Customers

Each year Carlisle deploys more than ten syndicated, OEM-backed surveys, covering 35+ markets on six continents. These surveys touch virtually every link of the “service chain”, including parts managers, service managers, technicians, and service advisors, to name a few. The rationale for these surveys is simple: if our dealers have the support they need, and their employees are happy, then they can focus on making the customer happy. But until recently, there was still a missing link – the last and arguably most important link – the customer. Sure, the industry has CSI scores, which measure what is going on in the dealer channel (30% or so of the total service market), but we all know the reality of those scores. The CSI link is completely broken – myopic, boring, gamed … useless.

Carlisle & Company set out to fix this broken link by launching our “Consumer Sentiment Survey” (CSS) in 2010. With over 2,000 customers across multiple brands, the CSS tells us what is going on in the industry. Here are a few highlights from three years of surveys:
  • The Digital Service Customer is a reality: internet-savvy, prone to switching , and vocal about what went wrong with that last brake job. A brave new world – brace yourself!
  • Dealer strengths are not aligned with customer values: the aftermarket consistently nails the things that matter most to customers, whereas dealers perform, or are perceived to perform, quite poorly.
  • The proliferation of cheap “white box” parts lured the repair business from dealers to IRFs, but that trend may be over. It’s a fair bet that the poor quality of those parts and the high quality of OEM “Genuine” parts is shifting business back to dealers. The key is to retain those switchers; that means the ball is in your court.
Someone I once worked with told me, “Variability is good – you can learn from variability”. Use this analogy to view the results of the Consumer Sentiment Survey. We now know what’s in the heads of vehicle owners/customers, at least on the industry level. But what’s in YOUR owners’ heads? And how does that differ (variability!) from what’s in the heads of those who own other brands? You don’t know, do you?

Clearly, variability matters. Consider the example below from our 2013 survey, which shows how dealer-loyal customers (the ones that remain in the dealer channel) view dealer strengths and weaknesses. As you might expect, loyal customers really think their dealers are doing a good job in what matters to them most. Lots of green without much variability. So, nothing to learn and nothing to worry about, right? All is good in OEM-dealer land.

But what if the red and green were reversed for YOUR brand? Wouldn’t YOU be worried?

Consequently, in 2014, we will take this survey to the next level by syndicating it and drilling down to the individual brand level. You ask, “How will this survey be different from what I’m getting today?” Well … where to start:
  1. No gaming: We will use online panels of uninfluenced respondents to gauge real satisfaction. No “Please-contact-me-(before-you-tell-my-OEM)-if-you-cannot-rate-your-service-experience-a “completely-satisfied” here!
  2. No myopia: The survey will include not only dealer respondents, but also non-dealer customers. After all, doesn’t it matter how our competition is doing?
  3. No boredom: Yes, we will keep a core of the survey intact every year – tracking does make sense. But every year we will include new “hot” topics: telematics, service lane technology, electronic manuals. The world does not stand still – neither should we in our effort to learn about it.
  4. No “no say”: As with all our other surveys, the participating OEMs will design the survey and will have the final say on which questions we will ask the customer. Don’t YOU know best what you want to know?
  5. No hassle: The survey process will follow the proven and efficient path of our syndicated dealer surveys.
We plan to launch our first syndicated Consumer Sentiment Survey in early February 2014 and will start the recruiting process in the very near future. No excuses – this is too important to ignore! For more information contact David Carlisle, Thomas Neumann, or Chad Walker.

Monday, November 25, 2013

DMP – Dynamic Menu Pricing For Dealer Service Operations; The Next Evolution In “Parts” Pricing

Preface: Everything in life is connected, and sometimes the connections are quite simple. “Dynamic Menu Pricing” is all about some simple connections that our industry hasn’t been able to achieve. Until now. Menu pricing is simple – it allows a dealer to offer a competitive price for oil and filter changes at, say, $39.95. Or, it allows a competitive price for brake and rotor replacement at, say, $295.95. For service customers, menu pricing is compelling because it gives them something they can understand and something they can trust. It’s the real price -- without the $100-an-hour labor charges that seem suspiciously high.

“DMP” is all about making everything a dealer sells just as simple. Price elasticity is simple in concept … but really hard to determine. Price elasticity is ultimately all about selling more volume or less volume by changing the price of what you sell. Like airline seats, hotel rooms, blue jeans at WalMart, and automotive parts and labor. The problem is that it has always been very difficult to calibrate the price elasticity of automotive parts. Or maybe not. If you plug in the simple menu pricing concept while calculating price elasticity, you enrich both concepts, and help dealers and OEMs make more money from more loyal customers. That is what DMP is really all about.

The current mix of parts pricing software technologies and operating philosophies is fairly primitive. It represents the best “Gen-1” thinking possible; but, it has not evolved sufficiently. Most employ pricing algorithms and segmentation logic that Carlisle developed 20 years ago. The “secret sauce” to the parts pricing we slaved over decades ago uses curve-pricing for “captive” parts, which account for about 20% of typical OEM parts revenue, and 80% of their
part numbers. The industry has harvested billions of dollars of added profits and improved satisfaction with this simple concept. But it was too simple and too good to be true. So, other stuff was stirred into the pot to cure client goose bumps – things like price benchmarking other OEM captive parts (this always made me queasy because captive parts ultimately have no benchmarks), and engineer-related benchmarking of parts (as if an end-customer can see any physical differences that can be translated into prices). My favorite is selling (or buying) a pricing software package based on Virgin-Atlantic-like airline seat price “elasticities”. This is simply too naive an idea to waste any more words on it.

Oh, what the hell; I can’t stop myself. Let me first explain price elasticity of demand. This concept governs sales volumes – if you lower your price, you sell more. If you raise your price, you sell less. The “elasticity” is all about the relationship between the price delta and the sales volume delta. The bar chart (End Customer Total …) shows clusters of hypothetical price discounts from a 10-step discounting process. This simulates many years of potential price elasticity market testing; prices were reduced step-by-step to see how the market sales volume reacted. At each step we reduced the prior step’s parts price by 5%, or the labor cost by 5%, or both parts and labor by 5%. The height of each bar reflects the cumulative customer repair order discount from the start of the process. At step 10, cumulative parts discounts alone represent a total customer “repair order” discount of 17%; for labor alone, the discount would be 20%; and for parts and labor together, it would be 37%. The most anemic way to calibrate “price elasticity” is to focus on parts pricing at the factory/OEM level. OEM discounts on part costs are diluted by the other piece to the RO: labor. You’d get a bigger bang for your buck by discounting labor rates as well… but only dealers can do this. A careful progression of discounts on both parts and labor will result in discounts with a much better chance of truly and operationally calibrating real price elasticities.

So what does this mean? It means that the next evolution of “parts pricing” needs to accommodate total service pricing (labor and parts) under free market conditions. It means that OEMs should work only with willing dealers – the fraction of dealers that volunteer to cooperate in making more money. Pricing strategies need not be “brittle”; they don’t require all enterprise partners to participate. Only a fraction of “can-do” dealers need to play ball; that will be enough to kick start the next evolution of “parts” pricing. Of course, OEMs can use Performance Terms & Conditions to grease the implementation skids here.

Dynamic Menu Pricing (DMP) embedded in pricing software leverages the power of undiscovered price elasticities in the global “parts” (and service) market. Used at its most basic level, DMP is a simple way to menu-price every single part and service component in your flat rate manual … and what falls outside the guide as well. DMP eliminates advertising static (possibly seen as uncompetitive) dealer labor rates, which have recently become the focal point for digital service customer cost comparisons. In some states with archaic laws that pre-date “menu pricing”, dealers will still have to post some form of labor rates, possibly a range, somewhere (perhaps in the new car showroom?) However, the posted ranges of labor prices in the hands of a good state lawyer will eliminate the ugly duckling effects we currently suffer from.

Service customers are very interested in costs, as seen in the top ten customer values; being informed of cost upfront is #2, a reasonable labor rate is #4, and a reasonable cost for parts is #9. Give customers what they want and value, and you will increase their vehicle and service repurchase likelihood.
If cost represents three of the top ten value drivers (and two of the top five), it might make sense to improve how a dealer bellies up to the cost bar. Carlisle has historically bifurcated its approach to helping OEMs retain more service customers at the highest possible operating profit. On the profit side, about 30% of the work we do is in global pricing, including software development. On the satisfaction side, about 25% of the work we do, and nearly 100% of our R&D, is in some of the softer aspects of customer retention. DMP brings both sides of our shop together.

Here’s how DMP works – there are three steps:
  1. Dealer Determined Labor Rate Matrix (LRM)– Can-do dealers need to think in terms of variable labor rate pricing. What’s there to think about? Easy. If you set a lower labor price on something, will you sell more of it? Or, if you set a higher labor price, will you sell less of it? This is independent of parts pricing. A good example is pads and rotor replacements, where the part costs are, say, $200, and your labor rate can vary from $50 an hour to $150 an hour. Let’s say that the job takes four hours of labor. The Dynamic Menu Price-spread from this would be from $400 ($200 + 4 times $50) to $800 ($200 + 4 times $150.) Obviously, the cheaper labor rate will sell more brake jobs … but, the big question is, “will I make more money?”

    Good question. To make more money the labor rate matrix must be set up to reflect maintenance and repair clusters, with labor discounts/surcharges that have similar market characteristics.
    1. Fast moving highly competitive procedures like LOF, tire replacement and rotation … stuff like this
    2. Initial service intervals – the first time they come back for a 20K or a 30K maintenance interval
    3. Second service interval visits
    4. Third and beyond service interval visits
    5. Brakes and rotors for vehicles under 30K miles
    6. Brakes and rotors for vehicles with 20K to 70K miles
    7. Brake and rotors for vehicles with more than 100K miles
    8. Light repair
    9. Heavy repair

    Note that managing the labor rate matrix is entirely up to the dealer. He/she can set up a generic LRM at 100%, which reflects straight labor rate across all job clusters. Furthermore, pricing program rules need to clearly accommodate warranty labor pricing. The simple fact is that we have an overabundance of great lawyers in this country. Use them to solve this riddle and enable OEMs and dealers to work together, rather than against each other.

    Using the LRM, coupled with dealer parts prices, to produce customer repair orders and quotes, enables the dealer to menu-price 100% of their service counter work. It replaces a two-step process that looks ugly to customers with a simple one-step process.

  2. Dealer/OEM Determine Menu Overrides – These are maybe a dozen or so highly competitive service operations that have market driven price points. Perhaps LOF for 4-cylinder gasoline vehicles, wiper replacements for certain models, or others. If the dealer doesn’t trust their OEM, they can determine these overrides on their own. Or, if they have a good relationship with their OEM and appropriate performance terms are in place, they can work with their OEM to set menu overrides. For example, an OEM’s performance terms and conditions might be sensitive to joint dealer/OEM menu overrides where compliance equals more terms cash

  3. OEM-Provided Total Price Elasticities – This is the game-changer. Look at the Dynamic Menu Pricing-Labor Rate Matrix chart. This is the concept at its most simple level. There are ten job clusters, and three columns of labor “discounts.” The dealer is in charge of the two left-most columns. “Start/Last” represents labor rate discounts that are currently in effect – it is a reference point. “Next” represents the labor rate discounts that the dealer wants to load at this time.

    The “OEM/Best” column is the game changer. It represents the result of crunching all DMP dealer data across all active dealers using the technology, and understanding the operative pricing elasticities of the total market. It also represents the optimal labor pricing discount that yields the maximum dealer fixed operations profit.

    Again, playing the pricing game at this level is entirely up to each dealer. They can simply enter “100%” in each of the two left-most cells, and take no discount. Of course, they will miss out on another level of performance terms that rewards participating dealers with more cash (more about this to follow).
Bottom line: Twenty years ago we discovered different ways to look at parts pricing and increase total value-chain partner margins. Our original algorithms have been codified into a broad array of software package alternatives … that have not evolved much in the last 20 years. This is not terribly surprising. DMP is the next evolution. This should not be a surprise to anybody.

Monday, November 18, 2013

2014 Crystal Ball – What Do We See, Looking Back From 2019?

by David P. Carlisle

Let’s transport ourselves to the not so distant, and not so uncertain, future. It’s 2019 and we’re taking stock of things that we call innovations, but that 2019 takes for granted. Much of what we see springs from changes that dawned with the new millennium. So, before we take a stroll around 2019, let’s go back to Y2000.

In Y2000 we plotted the course of industrial evolution – how technology would provide the consumer with more convenience – and used the video industry as an example. Wayne Huizenga made billions by picking up the trash with Waste Management and serving up the trash with Blockbuster. At its peak, Blockbuster was the ultimate convenience in video rental, but it eventually lost out to the even greater convenience of satellite and pay-per-view.

Back in Y2000, GM’s annual report showed a schematic of the web-connected car that dovetailed quite nicely with Motorola’s “smart vehicles” discussion in their annual report. Well, both companies were certainly on-target. The vehicles and the infrastructure are in place today.

Back in Y2000 we clearly saw what was going to happen to service shop sales. The internet would enable more convenience and better information, collapsing dealer service sales and margins. We nailed that one.

But, we screwed up in our choice of enabling technology. We thought that the Y2000 crop of B2B internet ventures would work out and change our lives. Most of these failed because either the market was not ready or the industry itself was to blame.

Back in Y2000 we definitely had enough tea leaves spread out on the saucer to get a pretty clear glimpse of the future.

Let’s move on to 2019. Collision avoidance systems will become as common as airbags and will save lives that are now lost in big wrecks.

These same systems will save bruises (to car and driver) in the smaller fender benders. Hey, they will even save egos from parking lot scrapes and scratches. Insurance costs will go down. So will collision parts sales. Collision parts sales currently account for about 40% of all parts sales by dealers – much of these sales are wholesaled to independent collision shops. So, let’s say that collision avoidance technology takes a hefty bite out of this part of the business … say, 30%. That might be a very big change. Hmm. A lot of companies feed off the collision parts business. LKQ comes to mind. Remember what happened in the 1980’s when the OEMs extended exhaust lifetimes from three to ten years? That really screwed up companies like Monro, Midas, and Meineke. They had to evolve to survive, and this evolution took them into full service repair and maintenance.

Likewise, the collision parts feeder companies will have to change in order to survive, which means they must move into the non-collision business. LKQ already has.

Lives will be saved, and our businesses will change from both of these first order and second order effects. What else will be different?

Just about everything.

The “connected vehicle” that we saw in GM’s and Motorola’s annual reports from Y2000 will become a reality. The health and maintenance needs of vehicles will be monitored by the vehicle itself, with collaboration from a benevolent supercomputer. The driver will interact with their vehicle via the internet. The Service Advisor will become the human interface – a kind of greeter – and the dealer workflows will become more predictable. Finally, finally, the customer will be in control via the computer–no matter how much the customer doesn’t know, the computer will prevent upselling to the uninformed.

This will make things interesting.

I have used the term “boiling frogs” to describe slow dealer reaction to the threat of chain service providers. (That is, a frog won’t jump out of water that is very slowly heated to boiling – and eventually it boils to death. This is also applies to people who won’t or can’t respond to change that occurs gradually.)

We will have a different pot of boiling frogs in the future. This time, it’s the independent repair specialists who will be contentedly croaking in their steamy bath of hot water.

And we really don’t have to worry about those second order effects stemming from collision avoidance systems, because they will be crushed by second order impacts from the connected vehicles.

Bottom Line: In the next few weeks let’s look at the industrial vehicle sectors – construction, agriculture, and heavy truck. Life is going to change in the next few years. Carlisle & Company will be conducting a massive amount of research into what 2019 will bring us – numbers, interviews with change agents and focus groups. All of this will come together at the Crystal Ball during the 2014 NAPB.

Friday, November 8, 2013

The More Connected Our Cars, The More Connected Our Contact Centers May Become

By Brian Crounse
Last week, I attended and presented at a session of SOCAP’s Automotive Summit in Scottsdale, AZ. This event focuses on automotive contact center and customer support operations. In the session I attended, we discussed drivers of near-term (the next 1-2 years) customer contact volume and subsequent contact center resource requirements. One data point that we brought to the group, from our own Customer-Facing Contact Center Focus Day this past June, is that several OEMs have significant contact volumes pertaining to telematics, navigation systems, and, in particular, assistance with pairing phones to cars’ infotainment systems. Another OEM participant shared their trends in infotainment-related contacts (a steep increase in recent months), and noted that these calls tend to take much longer to handle than other call types. This finding was confirmed by another guest speaker whose business is in consumer electronics support. Another participant mentioned that customers can get particularly emotional about phone-pairing issues - it’s really frustrating when you phone won’t talk to your car!

My takeaway was that figuring out how to efficiently and effectively help these customers—particularly those with phone issues—should be a top priority for automotive OEMs. These contacts will be a key driver of cost and customer satisfaction.

As luck would have it, the night after I returned home from this event, I realized that my new Netgear wireless router was actually slower than the ancient one it had replaced. Being someone who used to be good at figuring out consumer electronics, I first tried self-serve help via Google. No luck. I then tried, and got a “website under repair” message.

Blood pressure increasing.

Next up, I tried Netgear’s live support chat. I know that live chat support is relatively new in the automotive space, so I was curious to have this experience. What I found: no agents available; don’t close this window; don’t go anywhere.

Blood pressure increasing further.

But at least I was free to zoom around the house and put kids in bed, as long as I didn’t forget to swing by the computer from time to time. Eventually, success. After entering my router’s serial number, my passport number, and my first-born’s social security number, I got through to a person:
Joseph: Hi, my name is Joseph, with Expert ID xxxxx. How can I assist you today?
We walked through the script to debug my router. Thankfully, this was clearly more structured than reboot and pray. After around half an hour (including a few instances where I had to step away to put kids back in bed; thankfully the chat never dropped), we finally found the magic setting that, when changed, increased the router’s throughput 20x. Success! Despite my initial frustrations, I really felt better at this point.
Joseph: Anyways, upon closing this case, you will receive a survey via e-mail. Please help Netgear improve our products and services by taking a few minutes to tell us about your experience today. Okay?
One advantage we have with our contact centers is that it’s much harder for agents to game the surveys than, say, service advisors. As the survey was mercifully short, I was happy to provide feedback. I gave Netgear mixed marks on my overall experience (I was still sore about the long wait time), but gave my agent high marks, in both the skill and empathy categories (that’s another finding from our Focus Day—most of us ask about agent performance, but we all do it in different and hard-to-compare manners!).

The Bottom Line

My findings from this experience are:

General observations:
  • Yes, consumer electronics calls—and this includes automotive infotainment support—do take a long time to successfully complete. Our chat took at least half an hour and 1,500 words. All this, for support on a $50 router.
  • Yes, consumers do get emotional over these issues, myself included.
What worked:
  • The chat never dropped, even when I disappeared for a few minutes without explanation— an inadvertent drop would have sent me over the edge.
  • My agent established credibility—even if Joseph was simply following a debug script, the steps we took suggested to me that we might actually find a solution.
  • No “on hold”. Responses from my agent never took too long. This speediness helped offset my frustration with the initially long wait.
  • We found a solution. Of course this is everyone’s objective; success went a long way (but not all the way) toward satisfying me.
What didn’t work:
  • The downed support page. It’s up at the time of this writing, so maybe I just had bad luck.
  • Too much data entry up front. I realize the agents can act more quickly if they have info about my equipment up front, but having to enter a lot of info, after a long wait, with no gratification, was slightly vexing.
  • The long wait for a chat agent. I hated this. Some contact centers (airlines, in my experience) will call you back if there’s a long wait time. I love this. For chat, I would have loved the option of a text message when the wait time was down under a couple minutes.
The Bottom, Bottom Line

I’m only a sample size of one, but I really want two things from customer support:
  • A successful resolution. No surprise there.
  • Even if the problem is complex, minimal time lost due to waiting. If I have to wait, I want to be told how long, and/or get called back. Having reviewed metrics and survey instruments for a number of customer contact centers, this is one area where I think we don’t place enough emphasis.

Friday, November 1, 2013

Interview with Charlie Hyndman – Is He Still A Supply Chain Guy?

by David P. Carlisle

The summer flashed by like a speeding bullet. I interviewed Charlie Hyndman at the beginning of the summer to feature GM’s Customer Care division as an organization that stood out as not being typical. Cataracts are a condition that makes things blurry. When you are young, and true, you see “blurry lines” defining things that you simply do not have the context to understand. You don’t really have cataracts at these moments, but you might as well have them. As you get older you might once again see blurry lines. And you might have cataracts, but they’re not the culprit. You now have ample “context” – here the blurry lines single out the unexpected. The interesting stuff. Innovation. Things that are important.

At the beginning of the summer, I asked Charlie what’s new, and he enthusiastically started talking about crummy market share for fascias and grills and about sheet metal market share. If he could get the fascias and grills closer to the market, in time and distance, GM likely could increase its market share.

“How are you going to do that Charlie?” I asked. He replied by telling me that 95% of the volume in fascias and grills was in very few part numbers. If he moved them to the PDCs he’d have to add inventory and take a transportation and variable labor cost hit.

Charlie next talked about the customer requirements of a world-class RIM system, and that he really needed over 100,000 part numbers in “facing fill.” GM historically had around 50K part numbers in their PDCs. To get enough part numbers to “look” like the facing fill GM really needed, GM had bring back some ship-direct parts, buy some more inventory and load it into the PDCs. They also needed to be clever and utilize “finesse” by upgrading a batch of referred parts to free “critical” order status in order to achieve next-day service. He also might have to re-slot his PDCs and move into the mezzanines.

Lots of moving parts in a world-class solution to the necessities of the market. He didn’t mind this at all.

He didn’t mind because GM could leverage his increased PDC productivity to cover these extra costs, plus a whole lot more.

I saw blurry lines. Was Charlie a marketing guy, a sales guy, or, a supply chain guy? Who was this man?

Charlie talks a lot about “team.” Here, in Boston, we understand when a team’s a team versus when the team is an extension of a man. Bobby Valentine managed the Red Sox to worst-in-class because it was all about him. John Farrell took the Sox to the World Series because he understood that the guys pitching and hitting were on the field while he was in the dugout. It’s easy. You want to suck at what you do? Become a Bobby Valentine. You want to win? Model yourself after Farrell. Charlie’s a Tigers fan who we welcome to Red Sox Nation. He led his team, his pitchers and hitters, to world-class results. But, they made it happen.

Taking a look at the data for a minute, we can see that GM has made great strides in several supply chain areas over the last 15 years. The following charts compare GM to the best-in-class peer for each of the years, using a subset of the North America Parts Benchmark (NAPB) participants that are most comparable as this peer group.

Network line productivity, which measures how many lines are shipped per hour across all warehouses, is up 254% since 1997 for GM. Warehouse worker productivity at the facing warehouses is also up 246% since 1997 for GM. GM has had best-in-class performance since 2007 in both productivity metrics, as compared to this peer group.

At the same time, warehouse errors, which occur when the dealer either receives the wrong part or is short a part, are down 83% since 1997 for GM. GM is quickly closing the gap to best-in-class quality, and at these levels we’re talking about a gap of only about 100 errors per million lines shipped.

After a dip during the recession years, GM has caught up to its best-in-class peer group in system fill.

This increase in system fill has enabled back orders at GM to be reduced by 87% since the recession-driven peak of 2009, giving GM best-in-class results compared to the peer group in 2012.

Now you’re thinking, “Sure, we could get faster and better too, but it’s going to cost an arm and a leg to do it!” GM found that wasn’t the case. Since 2002, GM has reduced variable costs, which mostly consist of labor costs, like employee wages and benefits, by 57%. By comparison, the peer group has reduced costs as well, but not as quickly or by as much.

GM is best-in-class in all these areas and still reducing costs? Sounds like a plan I’d want to sign up for!

Months flash by and I am sitting down at a break in the NAPB Steering Committee meeting. I start reading my email and find a notice that Charlie was now Vice President, GM Global Aftersales Supply Chain, Warehousing and Logistics, … “leading an all-new organization to improve safety, quality, cost and customer service. The organization will bring together GM’s regional aftersales warehousing with warehouses aligned with manufacturing operations around the world. Working as an integrated team, the group will apply lean common processes to deliver benchmark levels of service to customers in every region while reducing complexity and cost. “

Must be cataracts. Because, the lines got ever blurrier. Charlie’s team is now global and encompasses everything that even looks like a warehouse or non-production operation. The conundrum here is that, if I was a lot younger, and saw true, I’d not see any blurry lines at all here. Because it makes sense.

The North America Parts Benchmark has spawned global benchmark groups, all using the same metrics and data dictionary. It has expanded to include Heavy Truck, Agriculture, Construction, and other like industries. When companies come into the benchmark group, they tend to cling to their differences. Parts warehouses come in all sizes and shapes; all sorts of different functionality, encompassing widely different missions, spanning light production (packaging) to incredibly simple transportation-related functions (break-bulk centers). When companies stay in the group (pretty much all do), they better understand comparability at a sub-function level. Receiving, scanning, put-away, picking, re-warehousing, slotting, sorting, … the list is endless. These sub-processes can be measured, benchmarked, and sorted from best to worst practices. Carlisle’s roles are to manage the measurements, ensure quality and comparability, and document best practices in such a manner that they are transplantable. There are no blurry lines in all this.

GM’s reorganization of responsibilities, now shepherded by Charlie, makes complete sense, and is consistent with the evolution that most of the 50 or so companies have seen in their decades-long benchmarking journey.

Yes, we can dissect diverse operations into common elemental parts, and deliver benchmark levels of service and cost. Or, in GM’s words: “working as an integrated team, the group will apply lean common processes to deliver benchmark levels of service to customers in every region while reducing complexity and cost. “

Bottom line: As we get older we, each of us, might once again see blurry lines. And, we might have cataracts, but they’re not the culprit. We now have ample “context” – the blurry lines now single out the unexpected. The interesting stuff. Innovation. Things that are important. GM’s reorganization is important. Think about it.

Friday, October 25, 2013

Hey, That Person Who Owns Your Customers Makes Minimum Wage

by David P. Carlisle

I love this industry. It’s the passion that I thrive on. We sell beautiful, drop-dead gorgeous products that have more computing power than some Fortune 500 companies had in the ‘80s. Outside of a home, the stuff we sell represents the single largest thing people typically buy. Beyond the physical beauty and value of these products, they seem to last forever because we measure and manage finished quality more than any other industry. We thrive on happy customers because they are the life-blood that sustains our future. In fact, more so than any other industry, again, we measure our success by all those smiles, and when we detect a frown, all hell breaks loose.


Our customers are kings and queens and we have fistfuls of programs for them when they come to the throne rooms we have built to serve them. That’s because these original new-vehicle customers hold on to their cars and trucks for about five-and-a-half years and, sometimes, come back to our dealers for service. Used? Heck, we pretty much never see them.

We call our guardians of the throne room “Service Advisors.” Carlisle & Company just completed its inaugural Service Advisor Survey in which approximately 4,000 Service Advisors participated. Here are some interesting facts about these guardians of the throne, these keepers of customer satisfaction, and masters of customer repurchase loyalty.

Service Advisor base pay is close to minimum wage, or about what they pay a cashier at your local Kmart. Call it $10 an hour.
  • About 11% of their total take-home pay is based on customer satisfaction-related bonuses. Here’s the image you need to put into your mind. You are a cashier at Kmart1 making about $10 an hour, and the store manager says that you can make an additional $3 an hour if your customers all say they are happy. He says he does not give a damn if they are really happy; he just wants them to say they are happy. After work you go out for a couple of Buds with your friends and figure out how to make even pissed off customers “say” they are happy. Heck, you just fill out the damn ‘happy’ survey for them! After a six-pack more of brainstorming you come up with a bunch of other sure-fire ideas. That $3 an hour is pretty much in the bank!
  • It gets better. Approximately 55% of a Service Advisor’s take-home pay is based on selling commissions.
    So, you are at Kmart and make $10 an hour, plus another $3 for your customer satisfaction bonus. Your boss comes over and says that he’s got a great deal for you. He says that you can make another $15 an hour based on commissions. You say to yourself, “Holy crap, that’s more than my base plus my happy money! Hey, man, I’m all ears!” So, your manager says, “Great kid, just go out and sell more crap!” So, Maria Alvarez pushes her loaded cart up and she’s got an $11 coffee pot. You say, “You know these things break all the time, I can sell you an extended warranty for just another $5 that will cover you for two years!” She says “Yes please!” Old Mrs. Casey is next and she’s got a load of $3 towels. You tell her that you saw her car as she drove in and it sounded a little rough – You tell her it needs a new battery. Cha ching!!! Yes mahaaaaam. You’re a Michelob guy now!

Recently I held a focus group of automotive Service Managers. We talked about Service Advisor compensation. They think we are stuck with it.

Bottom line: I love this industry. I love it because the OEMs are brilliant in product development. But they are simply stupid when it comes to the basic things associated with execution. It makes me feel like I have a life purpose. I can’t develop a new car, but I sure can tell them what’s idiotic about the care and feeding of their customers – and some of their employees – when they’re bringing those products to the market.


1 I am using Kmart just as an example of a local tarnished brand that is everywhere. Any pay levels or programs in these examples are more a reflection of the motor vehicle industry than Kmart.

Monday, October 21, 2013

Diagram Processes to Improve Service Lane Performance

Nearly every time we talk to dealer Service Managers, we hear complaints about warranty claims. The process is different depending on which part the claim is for...and just when everyone has it figured out, the rules change. No wonder Techs and Service Advisors can’t keep up. Even though we hear the most complaints from dealers, they aren’t the only ones hurting. Dealer confusion means the OEM needs more warranty claims specialists and help desk staff to handle incomplete submissions and answer questions.

There’s a reason warranty claims are a problem – they’re complicated. Warranty claims are just one of many dealer processes that involve multiple variables, such as different parties, different parts, and different requirements for those parts. Maybe you can’t fix the warranty claim problems immediately, but there’s a way to simplify the complexity: a process diagram.

Diagrams make complex processes easier to follow. Process diagrams put events into the proper order, clearly identify the responsible party, and account for decisions. Service Managers can create their own diagrams, or OEMs can distribute diagrams of common processes to dealers. Regardless of who creates them, these diagrams will help dealer staff. Service Managers can tack a copy on the wall of every space the process is used. Staff will be able to see at a glance what their next step needs to be. Everyone (technicians, service advisors, and anyone else) will be working from the same process. By the time an issue gets to the Service Manager, he or she will know who’s performed which steps, and who to go to with problems.

Below is a diagram of a sample warranty claims process. Whether you work at a dealership or for an OEM, you only need to know a few things to do this yourself:
  1. Who is involved? The horizontal bars (called “swimlanes”) represent different people in the process. This sample process has Technicians, Service Advisors, and a Service Manager.
  2. What are the actions? The squares represent an action, for example, “Review Claim.” The box is located in the swimlane of the person expected to perform the action.
  3. What are the decisions? The diamonds represent a decision, for example, “Drivetrain issue?” There are always at least two routes from a decision, typically labeled “yes” and “no.”

We used graphic design software (Microsoft Visio) to make the diagram you see above, but you don’t need any fancy programs. You can sketch a diagram on a whiteboard and take a picture with your phone. Function far outweighs form here – you’re going for clarity, not an award for artistry.

At first glance, process diagrams look like glorified checklists. So why not make a checklist? Because process diagrams perform better in two ways: how they depict who performs which actions, and how they depict decisions. Here’s the sample warranty claims process in checklist form. You can see how quickly it becomes confusing – it’s hard for a user to find where they need to look.

High-Level Warranty Claims Process
  1. Service Advisor investigates customer issue and checks warranty status
  2. Technician diagnoses vehicle issue and reviews warranty status
  3. Technician checks to see if issue covered by warranty
  4. If not covered by warranty, Technician refers to Service Advisor who informs customer of the issue
  5. If covered by warranty, Technician checks to see if the issue is related to the drivetrain. If not drivetrain-related, proceed to step 8
  6. If the issue is related to the drivetrain, Technician photographs affected part
  7. Technician then uploads photos of affected part to dealer portal
  8. Technician fills out warranty claim form in dealer portal
  9. Technician submits claim to Service Manager
  10. Service Manager reviews claim
  11. Service Manager either approves or denies claim
  12. If Service Manager approves claim, he or she submits claim to OEM
  13. If Service Manager denies claim, he or she refers claim back to Technician and Service Advisor
  14. Service Advisor and Technician work together to revise claim, then return to step 9, repeating this cycle until complete
The checklist gets the job done, but the diagram presents the same information in a format that’s faster to read and easier to understand. As a rule of thumb, the more complex the process, the more useful a diagram.

Bottom Line: Odds are that you’re struggling with at least a few processes right now. But if you can’t fix the problem, diagram the process. Diagrams put everyone on the same page, add consistency, and make it easier to pinpoint problems. If you’re an OEM, make diagrams for your dealers. If you’re a dealer and your OEM hasn’t taken this advice, make the diagrams yourself. They’ll save time and effort and improve the speed and accuracy of your key processes.

Tuesday, October 15, 2013

NAPB Data You Don’t Report or Collect – But Should

You’ve heard the adage “You can’t manage what you don’t measure?” Does it apply to you? Read on.

The Carlisle data team is gearing up to collect data for the next North America Parts Benchmark (NAPB). NAPB is the yearly cooperative benchmarking forum for thirty motor vehicle companies in the automotive and heavy equipment industries. We focus on service parts operations and we collect, for each calendar year, three distinct but interconnected sets of data to fully compare performance across the industry – Warehouse level, Company level, and Costs.

Most years, our clients suggest new metrics for benchmarking, many of which the participants quickly utilize to improve their business. However, in the past few years some key metrics have had less than 100% participation, despite the importance to your customers and your bottom line.

Supplier Management

Here’s an example: if you want sufficient inventory to fulfill customer demand, you have to manage your suppliers – because problems here can mean backorders and low fill rates. We all know this. So it’s no surprise that OEMs who have used metrics on their suppliers’ past performance to award future business actually improved supplier performance

We’ve collected supplier on-time performance data for NAPB since 2003, yet only half of the automotive companies reported it for 2013 NAPB. Heavy equipment (HE) companies are doing better, with almost everyone reporting. Starting in 2011, we collected supplier performance by type: “local internal”, “overseas internal”, and “external”. About two-thirds of the heavy equipment companies report internal supplier on-time percentages to this detail, but only a third of the auto companies. If you can’t even track internal performance, what hope is there to track your external suppliers?

In order to gain a different perspective on suppliers, we have recently added to the data collection the average supplier past due line level. Though two-thirds of HE companies report this data, only a handful of automotive companies do.

Without accurate data, a company cannot create incentives to improve a supplier’s performance or penalties for those who don’t meet the standards. Supplier problems disrupt the supply chain, from the warehouse workers who must unload an unexpected delivery, to the dealer whose order is delayed.


Transportation is one of the most important pieces of the supply chain but also one of the hardest to track. Since the beginning of NAPB, we’ve tracked lines shipped by mode. In recent years, we’ve added metrics such as outbound transportation costs by mode, transportation damages by mode, and on-time delivery by mode, in order to better quantify transportation performance.

No one needs to remind you that transportation costs are an important area to measure and manage. For NAPB participants, outbound transportation costs make up a median of 40% of the annual supply chain costs. A small decrease in these costs can have a large effect on the bottom line. Almost all OEMs can report outbound transportation costs as a total, but a third don’t report costs by mode. On-time delivery reporting is similar; about two-thirds of the OEMs can report it by mode.

Transportation damages have the lowest level of participation for these metrics. Less than half of OEMs are able to report damages, depending on the mode. Parcel has the highest reporting percentage, compared to LTL (less-than-truckload), DDS (dedicated delivery service), and air. Damages matter to your customers (if you have any doubt, take a look at your NAPB Parts Manager Satisfaction Survey verbatims). Are you taking steps to identify gaps in performance across the modes and carriers who may be causing that damage?

Bottom Line: Start measuring; start managing. In other words, this year, collect and report data that might not have been available in the past. Compare yourself to the industry; discover where you can improve.

Thursday, October 3, 2013

Carlisle Launches 2nd Annual Technician Survey

On September 16, Carlisle launched the second annual Automotive Technician Survey, with the support of 18 automotive OEMs across the U.S. The inaugural Technician Survey (September 2012) was wildly successful, with over 11,000 technicians responding. The 2012 survey was our first attempt to better understand what makes technicians tick, and therefore focused primarily on demographics – what kind of background do technicians come from, why do they choose to become technicians, and what are the primary issues that impact their retention?

With the launch of the 2013 edition of this survey, we have modified the questions to focus on how to better enable technicians to deliver efficient, quality repairs. Specifically, we are addressing topics such as training, technical support, tools and diagnostic equipment, technician-service advisor communications, etc. In addition, we delve into the latest service lane technology to understand what works and what doesn’t.

Similar to last year, the technicians broadly support this survey. Just one week into the survey, we have received over 4,000 responses, with hundreds of compliments similar to those found below. The survey will remain open for three more weeks. Stay tuned for the results.
  • I appreciate this survey, it is long and thorough … I think no other attempt made to at least give the appearance that we matter (not just are required) has made more of an improvement in morale than this survey. Thank you very much, I think the improvements made year over year have been great.
  • Best survey I've done as a XX employee. Maybe it will open somebody's eyes.
  • I feel that this survey was much more detailed and comprehensive than last year. It is also warming to know that XX really does seem to care about the satisfaction that we as technicians do have, and what they can change. Thanks to you.
  • Good survey. Seems like someone is listening.
  • I liked this survey because it is the first one I have ever done that actually seemed to want to know my opinion as a technician of 28 years.
  • I am very happy to finally be able to voice my concerns!
  • I like it, hope it gets used to make needed changes to support the product, personnel and customers.
  • A little long but required to obtain useful info.
  • A survey like this should be done every six months or so...
  • All good and thanks for asking!!
  • Survey is fantastic, I feel it targeted a lot of important topics and I hope this feedback helps.
  • Depending on the number of technicians in the dealership, please have the managers see this just with no tech numbers etc.
  • Detailed, without being lengthy.
  • Excellent survey.
  • Finally a survey that we can actually comment.
  • Fine, good pertinent questions.
  • Format was good easy to understand.
  • Format was quick and easy. Thanks.
  • Glad to be able to take this survey and hopeful it can help me or others in this position.
  • Good survey covers all that happens in the work place.
  • Good survey. Needs to happen more often.
  • Great questions and the length was right on.
  • Great survey and thank you!
  • Great survey! Thank you for taking the time to listen to the technicians!
  • Hope some of this will actually be recorded and used to promote a positive working environment for all of us involved.
  • I am very glad to have the chance to take this survey.
  • I appreciate XX taking the time to see how employees feel.
  • I enjoyed this survey, and wouldn't mind taking more.
  • I feel it was a good survey overall.
  • I am glad that someone wants to hear my side of what it's like fixing cars at a dealership.
  • I like the survey! It should be put out annually.
  • Made me feel like XX cares a little about technicians.
  • Overall a 9 of 10. Should be available to all service personnel.

Friday, September 27, 2013

The Connected Car’s Not Yet Connected – Maybe This Will Help

 by David P. Carlisle

For the past several months, we’ve been researching the technology behind the “connected car.” Today we will be releasing the executive summary of the “Market Assessment of Extended Service Technologies” - a 150+ page MyGuy research report that highlights the current state of Service Technology. It is free to MyGuy subscribers and contains opinions, knowledge, and wisdom gleaned from thousands of survey data points, dozens of interviews, one focus group, and about a thousand hours of thought.

We conclude that we are, as an industry, not prepared for the “connected car”.

The dream of many OEM strategists is this:
Imagine that you are driving your car or truck and something goes wrong. Your vehicle diagnoses the problem and walks you through an appointment scheduling process with the nearest dealership. As you arrive at the dealership, you are embraced by a quartet of hugs and kisses, the paper work is all set, the parts were already ordered, you have a half-decaf extra mocha latte, and, hell, you are even ready to go in about 45 minutes.
Well, for the most part, that ain’t happening … yet.

If your dealership does provide this kind of service experience, then you are most likely a mega-dealer who “gets it”, embraces MyGuy, and has engineered your own connections to your customers and their vehicles. However, if you are a smaller, traditional dealer then you either can’t spend the time to dream up and deliver a MyGuy service experience or don’t spend/have the money to facilitate it.

What about all of those tablets we keep hearing about? Nope, tablet installs are still fairly microscopic. Every rational service manager knows that tablets and high technology are the future of the service lane experience. But…errr…that’s still years off…let the other guys figure it out first.

There’s evidence for both success and failure from those who have installed Service Technology (ST) for scheduling or for managing their service lanes. Further, there are dozens of vendors in the space. Really, choosing a Service Technology provider right now is like trying to select the winner of the World Series during Spring Training (I would have told you Toronto…). So, how do you pick your ST winner when we are still in the technology’s early stages? Easy:
  • Look at how satisfied dealer Service Advisors are with the current lot of technology suppliers.
    • Hint: Not very satisfied.
  • Figure out why some dealers are not adopting ST, which promises to connect them to their brand of vehicles.
    • Hint: Too expensive, poor DMS integration, and unsure of any benefits.
  • Evaluate the improved efficiency imparted to the service lane process by these technologies.
    • Hint: Zip. Nothing. Nada.
Bottom Line: So then, what do you do? Some OEMs profoundly get it and have begun preparing their dealers for the “connected car”, others are struggling with what to do. Read the executive summary – it’s 24 pages – and find out some of the keys to unlocking the secrets of “connection.”

Download the executive summary at:

Thursday, September 19, 2013

“MyGuy”: Not Just For Service Customers

If you’re a Carlisle Spare Thoughts follower (and if you’re not, you should be!), you’re probably familiar with “MyGuy”—a term and concept we use to capture what service customers need and want. We talk a lot about “MyGuy” and how dealerships can do better with service customers. But what about parts, or wholesale, customers?

OEMs historically haven’t prioritized the wholesale parts business; worse, some have rejected it entirely. Wouldn’t that just be helping the enemy? Wrong.

The idea behind “MyGuy” is to capture as many service customers as possible, but there will always be some who go to the independent repair shops. The worst thing we can possibly do is lose out on service and parts sales to customers by stomping our feet and calling the independent repair shops the enemy. The best thing we can do is get the independents to use our genuine parts for their repairs.

So, do our parts managers need a “MyGuy” training and best practices program too? I’ll go ahead and answer that with a resounding yes.

Parts managers are often more technical and less customer service and sales-oriented. They’re incredibly smart people, but they’re not used to selling. With wholesale, this is the key—parts managers need to become salespeople, too.

The idea with “MyGuy” on the service side is that the growing segment of digital service customers (DSCs) will look online and find alternate service providers if dealers don’t seem trustworthy, honest, and reasonably priced—dealers need to be their “guy”.

While parts customers are practically light years behind service customers when it comes to technology and online activity, their internet use is beginning to grow and they’re getting into online ordering. There aren’t many digital parts customers yet, but there will be.

Plus, these guys don’t have to look far for other suppliers; suppliers like WorldPac are knocking on their doors, dropping in for visits, and running impressive promotions and incentives.

Plain and simple, our dealers aren’t doing this. In some recent research conducted by Carlisle, wholesale customers said that they see their dealer on average once a year. Once a year?! That just won’t cut it. Joe’s Repair Shop has a car on the lift and is going to buy from Mike, the WorldPac rep who just happened to drop by with a brand new free headlamp he thought Joe might want.

But it’s not just getting our foot in the door; it’s maintaining visibility and creating a loyal customer. IRFs are, without question, different than service customers. They value delivery speed, parts availability, and parts quality, but they, too, need a trustworthy go-to “guy”. They’re old school and they want that rapport.

Maybe Joe’s Repair Shop wouldn’t buy from WorldPac if he could call up his buddy at the dealership and get the part from him in a few hours. But why would he do that when “every time I call, the phone just rings and rings” or “every time I call, it’s a different guy—they don’t know who I am and I don’t know who they are”? We should know these guys by name, and we’re not even picking up the phone?

The competition is tough, and the independents aren’t going to come looking for dealers. We need to be out there building and sustaining the business.

Bottom Line: Capturing wholesale customers is a whole new ball game for parts managers. They aren’t used to being in a sales role, but that’s what they need to do to grow the wholesale business. There’s a long way to go and maybe a parts “MyGuy” is our next endeavor. For now, one step at a time…!

Friday, September 13, 2013

The Millennial Question

Cars aren't cool anymore. That is the verdict of a broad swath of Generation Y. …Smartphones take them to virtual hangouts with friends.” 1

“Some young people shun driving because it interferes with their texting…” 2

“More young adults today would rather hit the information highway than the open highway...” 3

In the past few months “conclusions” such as those above have played out across the internet as front-and-center issues for our industry. These generalizations arose from a Zipcar study about consumer behavior; it implied that Millennials value their mobile devices over auto ownership. Story-hungry media misinterpreted some parts of this study to explain Gen Y’s reluctance to purchase new vehicles and dealer service. True or false? Let’s first look at the study itself.

In early 2013, Zipcar released findings of a survey examining attitudes and behaviors of Millennials regarding transportation and technology, particularly the perceived value of car-sharing and mobility services, like Zipcar. Let’s focus on the two most cited (and misinterpreted) questions:

The question on the left has generated such headlines as: “The Cheapest Generation” 4 and “The End of Car Culture.” 5 However, the reality is not so black-and-white. The truth is that a young college student or a young professional living near public transportation can get by without a car, but their laptop is their livelihood. What good is a car if you don’t have a phone or laptop to arrange meetings and make appointments? Remember, Millennials typically do not have landline phones, so all communication is facilitated through their mobile phones and computers. Does this mean they don’t value cars? Of course not.

The media and the public seem to have drawn grand conclusions from question two, on the right, with one article stating “They'd rather hang out with their friends on Twitter than get in a car to go see them.” Again: look at the survey. The key word in the survey question is “sometimes”. Sometimes, Millennials responded, they chose to visit friends online rather than drive to see them. That’s true for most people, and no different than the car-crazy baby boomers who, back in their youth, phoned friends rather than drove to see them. Online communication and social media, not to mention the telephone, are supplements to in-person communication, not replacements.

So then, why aren’t Millennials buying new vehicles? It’s a convoluted issue, but really boils down to one thing – the economy. The truth is Millennials are being hammered by low wages, low employment, and skyrocketing student debt.

The median income for a 25 to 34-year-old has increased by over 170% since 1980. Meanwhile, the cost of America’s best-selling vehicle – the Ford F-series – has increased by over 257%. In 2011, payments for an F-150 accounted for 83% of a 25 to 34-year-old’s income, as compared to only 63% in 1980. Clearly, the cost of new vehicles is outpacing income.

But median income only paints part of the picture. What about employment rates for the younger generation?

The above data includes college students who are often, and understandably, not employed. However, it is clear that employment rates are strikingly low for this generation and actually shrank more than 3% in the past year. The job market isn’t what it once was. Consider the field of engineering – a degree in engineering used to guarantee a great job after college. Today, it’s increasingly difficult for recent engineering graduates to find jobs. Many companies are seeking seasoned engineers, instead of green, unproven grads, to keep training costs low and output high.

The final nail in the coffin is student debt. College loans are now the second-greatest source of debt in America, with mortgages being number one. How much cash are we talking about? The Consumer Finance Protection Bureau reports $1 Trillion. Furthermore, according to the Federal Reserve, over 14 million borrowers are under 30: the Millennials. What’s the median debt look like? Well over $20K per person for both private and public universities and growing quickly, and over 60% of students are borrowing. These numbers dwarf the kinds of education-related debt Gen X experienced.

The Millennials aren’t buying cars, but not because they don’t care and not because they don’t need them. No, it’s because they’re broke. New vehicle prices are much higher than what previous generations paid, relative to their incomes. High unemployment rates for Gen Y further reduce potential buyers. Finally, the Millennials are in debt. College graduates who have over $20K in student loans, with dangerous interest rates, will delay costly life decisions such as purchasing a home or a new vehicle.

Bottom Line: Millennials don’t hate cars – they’re broke and pinching pennies. As they pay off loans they will begin to purchase new vehicles, new homes, etc. In the meantime, face the fact that the nature of debt and the makeup of the labor force represent significant obstacles to new vehicle purchases.







Friday, September 6, 2013

RIM – The Evolving System

When OEMs began discussing Retail Inventory Management (RIM) at our Focus Days, starting in 2010, they struggled to understand how different RIM systems worked. OEMs used tools that varied enormously from one to another, and the metrics were limited; there was no data available to clearly show which RIM system was best and why. Four Focus Days later, the group has begun to define what works, what these systems are capable of, and how to improve them.

During this year’s 1.5-day RIM Focus Day – expanded from one day at the participants’ request – we concentrated on stocking logic, key performance indicators (KPIs), RIM terms and conditions, and implementation methods. It’s an understatement to say that these forums are changing the industry.

The group has been collaborating with RIM dealers by recommending changes in the programs. In response, a number of those companies have modified their RIM programs. OEMs have also modified terms and conditions for RIM dealers, in order to encourage those dealers to comply with the group’s recommendations. Over time, we have evaluated the impact and relative cost of the terms and identified which ones are most effective.

Stocking logic is another success story. It has always been difficult to compare the performance and effectiveness of RIM systems, due to a lack of consistent metrics in the areas of fill, dealer inventory, and compliance. This year, the group dissected each metric and discussed the challenges in data gathering and calculation. By the end of this Focus Day, OEMs reached a consensus on how each metric should be strictly defined.

Why devote so much time to metrics? Improved data allows us to see RIM effectiveness, and the defined set of core metrics can be reported by all RIM systems. That means future cross-brand comparisons will truly reflect differences in system usage and performance. And with an improved dataset the group can really begin to compare and contrast various approaches to stocking logic.

Three OEMS also demonstrated their RIM systems to help group members better understand the functionality and dealer interface associated with each. Two of the systems were custom-built, while the third was an off-the-shelf product; they ranged from a fairly simple order recommendation system to a highly complex and integrated system.

That served as a jumping off point to analyze how RIM systems integrate with Dealer Management Systems (DMS): the structure of various interfaces and the DMS systems with which OEMs have integrated. We discussed the future evolution toward more transactional Point of Service (POS) data collection, and the possibility of working jointly to develop interfaces.

Most OEMs want an integrated DMS system that includes complex solutions, such as policy recommendations and automatic order generation and promotions, to name a few. OEMs are also taking the reins, limiting dealer controls, in order to drive improved consistency and performance across the supply chain.

Bottom Line: Defining the metrics and collecting a common set of data will help the group effectively benchmark RIM performance, and show who is truly best-in-class. Understanding who the industry leaders are, and why, will enable RIM to become more efficient and help OEMs satisfy dealers and end-customers. These Focus Days have shifted the industry and started new trends in RIM systems. Once again, industry benchmarking is helping to raise the performance bar.

To find out more about all upcoming benchmarking and research activities visit our Carlisle Calendar.

Thursday, August 29, 2013

Express Service and the Future of the Service Department

Several major threats to dealer fixed operations are on the horizon. They all stem from the fact that the customers’ needs, the dealers’ perception of those needs, and dealers’ strengths do not always line up. Non-dealers,which include chains and independent repair facilities, have many weaknesses, but as you can see in the chart below, they are good where it matters: convenience and how customers view prices. Improvement in vehicle quality over time has meant less warranty work and repairs, and more regular maintenance and light repairs. Automotive service chains are effectively competing with dealers by increasing service levels for these maintenance services and simple repairs. All this darkens the outlook for dealers and OEMs, unless they change the way they do business.

To address changing market dynamics, and retain their customers and profits, many OEMs and dealers are looking at quick service operations (a.k.a. Express Service). In fact, a recent NASB benchmark study found that over 50% of OEMs are investigating the Express Service business model for many of their dealerships. The benefits of Express Service are widespread, but the key benefit is customer satisfaction, which drives customer retention and, ultimately, sales.

Express Service can help dealers become more competitive in their markets and improve their productivity and sales.

The journey to a successful Express Service program is not easy, and requires several considerations. Here is a quick list:

  • Management/Dealer Buy-In: Like any dealership change initiative, Express Service needs to be a core element of a dealership’s operations; that means buy-in and support from top level management, including the dealer principal. The installation process can take anywhere from one week to six months and typically involves an in-dealership assessment, as well as meetings with dealer management and the OEM on in-dealership training. Everyone needs to buy into the overall philosophy of “No appointment necessary”.
  • Dedicated Resources: Dedicating resources to Express operations is necessary for success. Dealers must assign separate technicians, service advisors, and service bays to these operations. A recent Carlisle benchmark revealed that the average Express Service operation includes one dedicated service advisor, two dedicated technicians and two bays. However, this differs from dealer to dealer, based on the need. Maintaining supplies of fast-moving parts in Express Service bays is also critical. The key is to have flexibility and simplicity. Remember kaizen.
  • Facilities: Another essential decision is whether or not to create a separate facility for Express operations. There are two distinct models: the Ford Quick Lane model, which has separate facilities for quick service operations, and Nissan Express Service, which leverages an existing, but separate, area within the dealership. Either way, it’s imperative that the services be separate from the main shop, with clear signage so customers can easily locate Express operations.
  • Process Excellence: Express operations are more art than science. They require a carefully orchestrated sequence of events when a customer comes in. Nail down the inspection and service process, and know the exact time for each step. Within 10 minutes the customer should be told what services his vehicle needs and how long it will take. Most OEMs support dealers with a robust installation process; they leverage third party and/or corporate field staff for installation and follow-up visits.
  • Staffing: The Express Service advisor should have a different background from staff in the main shop. Customer service in Express should emphasize personality and sales traits over automotive knowledge. It is important to have a succession plan in place for Express staff, because there is a high turnover rate associated with Express Service operations.
  • Services Offered: Most OEMs start Express operations with maintenance/scheduled services (Level 1). Once they perfect the process, they graduate to light repairs, such as brakes and tire repairs (Level 2). Very few offer medium to heavy repairs through Express operations.
  • Monitoring: Key performance indicators (KPIs) for Express Services typically include measuring demand, profitability, and customer satisfaction. It is also important to establish Express op-codes to track and monitor Express repair orders and related metrics. Some OEMs check in with Express Service operations annually, while others monitor data daily.

Bottom Line: To compete in the new market, OEMs and dealers must align their goals and processes. The industry has set the bar for change: fewer repairs, simpler maintenance services, and longer service intervals. The big auto chains, like Pep Boys and Firestone get this and are going after it. Just look at what they’re spending to market these services. OEMs must look more like “chains” in the future – in the new world, simplicity and dependability will be the trump card.

Friday, August 23, 2013

Powersports Companies: Don’t Spoil a Good First Impression

Like most industries looking to sustain their growth, manufacturers of heavy motorcycle (500cc +) and recreational products (jet skis, snowmobiles, ATVs) are targeting the developing world. The strategy makes sense: motorsports products are generally luxury items that appeal to the rapidly expanding middle and upper-middle classes in these regions1. OEMs have successfully brought their products to market, but a common sore point for consumers is aftersales support, especially the availability of parts and accessories. Customers can purchase vehicles, but still have a hard time getting parts to repair or accessorize them.

OEMs have always faced hurdles in getting their products into these countries. While mopeds are common, motorcycles greater than 250cc are not allowed in cities or on highways in Asia’s emerging markets. Recreational vehicles are often in demand in remote areas, where the challenge is to develop a base for sales and support. All OEMs struggle with high tariffs. The logistics in many countries can be diabolical, requiring a large number of dealerships relative to sales; this can impact training, service, and financial stability. Serving the developing world is not easy, but that’s no excuse for poor service.

Several common issues drive the problem of aftersales product availability.
  • Corporate governance: Some organizations do not have a centrally led strategy that sets goals on service levels for their dealers and end-customers. The result? Regional managers don’t set retail fill targets or make decisions that align with corporate goals in the region.
  • Dealer capabilities: Dealers in developing countries are often considerably smaller than those in the developed world; they have less money to invest in a broad inventory and less mindshare for inventory planning.
  • Longer lead times: The supply chain for the developing world is improving, but it can still take weeks to get products into rural areas of China, Brazil, and India.
Poor retail product availability has serious short and long term implications for powersports OEMs.
  1. Repurchase Loyalty
    The link between aftersales customer satisfaction and same-brand repurchase intent is clear and strong: every customer interaction is an opportunity to reinforce the brand and create an impression. However, when we discussed with several OEMs the issue of parts service levels (retail availability and lead times) in the developing world, they admitted this was a weakness.
    The bottom line: OEMs can’t grow or make profits, they can’t develop their brand or retain customers unless they can get parts into the markets and make them available for profitable sale.
  2. Evaporating Demand
    For most repair and wear parts, demand is inelastic: these parts must be replaced or the unit will not run. At the same time, accessories are often impulse purchases, with the majority made at the time of the unit’s sale. If these demands are not satisfied, they can evaporate along with the profit that comes with them.
  3. Counterfeiting
    Counterfeit parts are a growing issue in the developing world; an estimated $45 billion2 was lost in 2011. Counterfeit apparel is a challenge in its own right. The majority of the genuine products are produced in these same developing countries. Their consistently poor availability is the equivalent of firing a flare gun to would-be counterfeiters. They may find you anyway, but why make yourself a target?
What can OEMs do to improve their service levels in developing markets?

The solution to effective aftersales product availability will vary considerably by OEM and market segment. Each segment faces unique challenges; those with larger parent companies (e.g., Honda, BMW) can be better positioned for success. However, all OEMs can take steps to solve their problems.

Some places to start driving improvement include:
  • Global Inventory Deployment: This means having the right product available in the right place at the right time within the OEM network. If the part can’t be in the right place at the right time, someone needs to know exactly how to get it there. When sales are relatively low in developing markets, OEMs naturally want to keep inventory low, but they often focus too heavily on depth (stocking large quantities of a small number of parts) instead of breadth (stocking smaller quantities of more parts).
  • Retail Inventory Management (RIM): This means systematically recommending or automatically determining the products that dealers should stock, and how much. This is especially important for developing markets where dealers are often smaller and less technically sophisticated. One of the challenges in launching a sophisticated RIM program in the developing world is the many dealer management systems in use, all of which require data interfaces. However, some simple RIM implementations do exist. They can be used to improve fill rates to dealers until OEMs can implement a more robust system. The earlier a RIM program can be implemented in the lifecycle of a dealer, the easier it is to manage in the long term. The most successful RIM programs, in terms of uptake, have been a requirement at the time of dealer creation.
  • Service Level Product Segmentation: This strategy focuses on simplifying the challenge OEMs face when setting service targets for thousands of products. The goal is to link OEM and dealer goals in a way that produces maximum sales with minimum inventory, but also factors in customer expectations. Both RIM and global inventory management must provide informed, consistent, and actionable objectives to execute both of those programs.
Bottom Line: Globally, the solutions will vary widely depending on the organization’s size and structure. The solutions may also vary by region. However, the most important first step is organizational alignment to: (1) agree that there is an issue, (2) agree on the objectives and timelines for improvement, and (3) agree on how reaching those objectives can be supported centrally and locally.

1 “China and India: tomorrow’s middle classes”, Ernst & Young Global Limited, accessed June 10, 2013, 

2 On the Road: U.S. Automotive Parts Industry Annual Assessment 2011