I often have former dealership body shop managers in my educational programs. Recently, I had three current dealer shop mangers in my audience for two days. I have an opinion (no way!) on why less than 40 percent of new car dealers have a body shop. Part of my explanation includes a couple of illustrative stories. I have this standard patter about why “Joe” (as I point to the nearest former dealer shop manager in my audience) no longer works there, without asking him. The story goes like this.
A Woeful Story
I predict Joe quit his job because the dealer principal (or fixed ops guy) promised Joe he would be paid a nice bonus on top of his monthly salary if he did well, increased sales, lowered cycle times and showed a profit. Typically, that bonus was calculated from the gross profit the body shop would generate each month.
The first few months Joe had the job, there was little gross profit. It took awhile as he figured out the different techs’ skills and work attitudes, the correct parts procurement process and all the back-end paperwork to satisfy everyone from the insurers to the payroll clerk. But finally, he had the month he had been working toward, went home and told his significant other to expect a big check.
When the check arrived, there was no bonus. It turns out the dealer needed a new snowplow, and they charged the whole thing against the body shop – in one month. Hard worker that Joe is, he went forward with a smile, stayed late and worked until the shop had another banner month. Positive that this time there was finally a nice check coming to him, he once again told his spouse. Only there wasn’t. That month, the entire fee for the “customer service” consultant (who the dealer hired to improve everyone’s attitude about working there) got charged against the body shop. So Joe quit and became a former shop manager.
No Bonus For You
This past week, as I reached the snowplow part of the tale, one of the current shop managers (who had only been at the job a few months after the former guy quit) said that last month he had record shop sales. And on the P & L, his rent went from $3,000 (as all prior months had been) to $9,000. As a result, there was little gross profit to be shared. No bonus for him. I’m saddened that this parable is so common that I can tell it anywhere in the country and have several folks in the seats exclaim, “That’s me!”
I contend this scenario is part of why car dealer principals often don’t like body shops. Once the successful shop manager is shafted a couple of times, he quits. The dealership then takes their best tech (just like my guy from last week) and makes him the shop manager, which is a two-pronged mistake. Why? Because not only did they lose their most productive repairer, he often doesn’t have the people skills or financial skills to make a good manager. But in my oft-told story, I predict that he rises to the occasion (just like my guy did), does a fine job, increases body shop sales and profits, but finally quits when his rent is tripled or the entire parking lot is resurfaced and charged to the body shop’s account.
Having lost two capable people, the dealer now appoints yet another new manager. In my experience, that guy was often the clean-up kid six months ago (only a slight exaggeration). But with the original manager and his hard-working replacement long gone, he’s now the new shop manager. Not only does he not have the original guy’s people skills or the second guy’s technical skills, he’s bewildered every day by the decisions and issues a body shop manager must solve. As a result, the body shop loses money every month, gets dropped from their DRPs because their cycle time is so long and loses the good techs to other shops. Finally, the dealer principal says enough and closes the body shop. “Who needs all those headaches anyway?” he says.
Absorption
Here are some things I find the average new dealer doesn’t fully understand. They see that the door rate in their service department is $95 per hour and there are few problems with scheduling the work, repair quality or accurate delivery times when the mechanics do it. But their body shop is at a $44 per hour and is fraught with problems and unhappy insurance companies, customers and employees. “To heck with it,” they say, and decide they’ll take a referral fee and all the repair parts sales from some local body shop operator and close their own.
Absorption is a term dealers sometimes use to measure one element of their financial performance. It refers to the ability of their fixed operations (parts, service and body) to generate gross margin dollars that would all be applied to the dealership’s total overhead, absorbing it. In a perfect world, the fixed ops’ gross profits would cover 100 percent of the dealer’s operating costs so that every single dollar on a new car sale was net. Real-world absorption percentages are 60 to 80 percent. But if the goal is to generate the most fixed ops gross profit, wouldn’t it be better to have three business engines generating profits? Without collision, the dealer is left with just parts and service to carry the backend gross profit load.
The dealer probably also didn’t understand that the labor time database the body shop used had many more opportunities to perform the tasks in much less than the allotted times. At 150 percent production efficiency, each of those $44 labor hours actually pays $66 at a healthy margin. Plus, you can add in the gross profit on the crash parts sale. Selling crash parts leads to a related discussion of the adversarial relationship many dealers have between their parts departments and body shop managers.
Parts Dept. vs. Body Shop
Wherever your shop stands today on the best and speediest mix of repair and replace, selling new crash parts can be a profitable solution. Unfortunately, in many dealers, their captive body shop is the largest single customer of the parts department but gets treated worse than anyone else. I’m unclear why this seems so prevalent as I travel around the country. Another bone of contention, besides the slow and haphazard service from the parts department, is the gross margin from selling the crash parts. To which department should it go?
If the parts department manager keeps all the gross profit on the sale of all crash parts, the body shop manager has little impetus to replace instead of repair. Typically, the manager’s bonus is based on gross profit earned, and if all crash parts used during the repair are never included, smart managers repair more often and replace less. This risks both a loss of easy gross profit dollars and a potential slowdown in cycle times.
It’s all the dealer’s money, whether generated in the parts department or the body shop. I’ve been part of discussions when a new body shop manager wants to change the existing policy on crash parts gross profits. Typically, the shop manager has been at the dealer a few months and the parts manager has been there a few decades when we meet with the dealer principal or fixed op director. Sadly, the long-tenured parts guy often wins these battles. Smarter dealers make sure there’s a way for the body shop manager to keep some of the gross profits on the crash parts they sell and replace during repair.
Built-In Advantage
New car dealers have a built-in advantage when Mrs. Smith is looking for collision repair every seven years. Ours is a unique business and has many twists and turns that aren’t clear to all car dealer principals. They just want their mechanical service stalls filled every day and steady sales of new and used cars. Collision seems like more trouble than it’s worth.
New car dealers I visit that are paying generous wages, acting honorably and treating the body shop like a profit center are enjoying the results. The person in the dealership who can make collision truly a priority is in the big office up front. If you have their ear, make sure he/she gets the whole story on collision repair.
Mark R. Clark is owner of Professional PBE Systems in Waterloo, Iowa. He’s a popular industry speaker and consultant and is celebrating his 26th year as a contributing editor to BodyShop Business.
