The Garage With Ed Kovalchick, Founder & Owner, Net Profit Moderated by Mike Bowers, Executive Editor, DealersEdge
Ed Kovalchick is the CEO and founder of Net Profit Inc., (www.npinc.com) an international fixed operation consulting and training firm located in Alabaster, AL. Mr. Kovalchick and his firm have assisted thousands of dealers here and abroad, as well as every major automotive manufacturer. Mr. Kovalchick's career includes work with Toyota and Honda in Japan, GM in the Middle East, Peugeot in Europe, speeches and workshops for the Australian, Mexican, Canadian, Brazilian, and nineteen U.S. Auto Dealer Associations. He has spoken at NADA and served as a guest instructor for the NADA Dealer Academy for seven years, as well as conducted hundreds of dealer meetings and workshops on all areas of Service, Parts, and Bodyshop operations and customer retention. Mr Kovalchick has authored hundreds of columns and articles for Dealer magazine, Wards, and others over the years. Included on his resume is ownership of Nissan and Chrysler dealerships, as well as an independent service center.
By Ed Kovalchick & Net Profit Achieving 100% Fixed Absorption In A New Or Used Car Dealership Is A Reality, And A Necessity In The Near Future. 3
Ed Kovalchick Founder & Owner of Net Profit Conducted Training Worldwide Owner of Last Chance Garage - Restorations Former New Car Dealer Master Technician Graduate - University of Louisiana Columnist for Dealer & Fixed Ops Magazines 4
Net Profit Inc. Began in 1979 Consulting Training Research - Development for Automotive Dealers & Manufacturers Conducted Business in North, Central & South America Japan Europe Middle East Worked With Every Major Auto Manufacturer Trained Thousands Of Dealer & Manufacturer Professionals 5
100% Fixed Absorption What is it? It is the ability of Service & Parts Gross Profit to pay the Total Dealership Expenses. 100% Fixed Absorption means that all the gross profit on new and used retail sales goes to profit, rather than paying bills. During the first 50 years of automobile dealer existence, this was the norm. 6
Absorption Example: Total Mo Dealership Expenses $375,000 Total Mo Service & Parts Gross Profit $165,000 (44% is the average we have calculated) Unabsorbed Expenses $210,000 Because of the low absorption numbers in the average dealership, it is common to have an expense burden per retail vehicle of over $2,000! 7
What New Car Dealers Are Facing: Reduction in RO Counts Reduction in Maintenance Requirements Reduction in Warranty Revenue Reduction in New Vehicle Sales Increase In Expenses Increase in Taxes Successful Competition 8
Crashing Vehicle Deliveries Devastate Service & Parts New vehicle deliveries have plunged in recent years, and projections are low for at least the next three years. Dealer service and parts gross profit has been primarily derived from first-owner five-year and newer vehicles. This group is diminishing rapidly, while the second owner group is growing. 16.1m 40.3% Drop from 07 2007 13.2m 2009 New Vehicle Deliveries 2008 9.6m 2010 10?m Projected 2010 2013 from 10m 13m 9
Trend 2008 to 2012 fixed gross profit Based on this dramatic drop in new units being sold into the market, service and parts gross profit has been dropping and will continue to drop. 2008 (5.4%) 2009 (16.6%) 2010 (24.9%) 2011 (31.1%) 2012 (31.4%) This drop will place the expense burden per vehicle into an unreachable number, well over $3,000 per delivered unit! 10
What Is The Answer For Dealer Survival? Sell More Units To Reduce Burden Per Unit Increase Oil Change Business Discover More Needs Per Customer Create More Needs Per Customer Sell Beer At The Parts Counter OR Tap Into The Massive Second & Third Vehicle Owner Market 11
What s In It For Dealers? The second and third owner market is made up of six year and older vehicles with over 75,000 miles. Some Three-fourths of all vehicles fall into this category, with the average age of registered vehicles over nine years old! These owners do not use dealer service. 12
How Different Is This Market? Average RO about 3 hours Average Service Visits Per Year 4 Parts Sales To Labor Sales Over 120% Revenue Per Job $300 and up Loyalty Factor 70%++ Waiters None Attitude Help Me Please 13
Where Do These Customers Go? 75,000 Registered Independent Shops Approximately 35,000 Unregistered Independent Shops (Note: Dealer Locations 17,000??) SEMA - NACE - NADA Three-fourths of all technicians work in the Aftermarket most in Independent Shops! 14
How Are These Shops Doing? In the annual survey of Independent Shops by the Automotive Service Association, the majority of shops had a better year in 08 and expect to do better in 09. Of classified advertising seeking auto techs, over 90% are related to the Aftermarket, with most in the Independent Shops category. 15
What Do Independent Shops Offer? Free Shuttle What? Service While You Wait Are U Kidding? Attractive Facilities Only at home Bud. Saturday Service Cuts into fishing time. 30-Minute Maintenance Huh! Factory Trained Techs Not needed. Factory Parts An option. Lengthy Warranty Whatever. Coupons Discounts For what? Factory Equipment Why? 16
So What Do Independent Shops Offer? Technically Knowledgeable Writers Parts Options Including O.E! The Writer Controls & Orders Parts Repair Versus Replace Labor Options Closely Managed Technicians Fix It Right The First Time - Communication Stay Till Its Done Attitude No Employee Turnover Writer Is The Cashier Active Delivery Impeccable Reputation 17
Is It Worth It For A New Car Dealer To Learn How To Capture And, More Importantly, Maintain The Second & Third Vehicle Owner Market? For most dealers that will mean developing new skill sets and new attitudes in service and parts. It will likely require adding employees. May have to change how the facility is used. The Garage will generate an entirely new customer base who will be buying new or used vehicles in the future. 18
What Is One Garage Tech Worth In Monthly Sales To A Dealer? Monthly Attendance Clock Hours 160 Production Output % (minimum) 120% Monthly Flat Rate Hours 192 Garage Labor Rate $80 Labor Sales $15,360 Parts Sales @120% $18,432 19
What Is One Garage Tech Worth In Monthly Gross Profit (bill-paying $)? Labor Sales $15,360 Gross Profit Retention 70% Labor Gross Profit $10,752 Parts Sales $18,432 Gross Profit Retention 45% Parts Gross Profit $8,294 20
How Many Customers Does One Garage Tech Need? Monthly Flat Rate Hours 192 Flat Rate Hours Per Customer 3 Customers Needed Per Month 64 Customers Needed Per Day 3.2 Total Mo Gross Profit $19,046 Annual Gross Profit $228,552 21
How Big Is Your Market Of Second & Third Owner Vehicles? On average, the last six years of new vehicle deliveries represent less than one-fourth of the available Garage vehicles in the market. Six Year Deliveries & The Available Garage Market New Units Per Year 500 1,000 1,500 2,000 Six-Year Deliveries 3,000 6,000 9,000 12,000 Approx Garage Vehicles 12,000 24,000 36,000 48,000 22
It Doesn t Take Much Penetration! Since one Garage Tech only needs 194 customers for a year, only a small market penetration is needed. New Units Per Year 500 1,000 1,500 2,000 Approx Garage Vehicles 12,000 24,000 36,000 48,000 194 Vehicles = 1.6%.8%.5%.4% Available Garage Vehicles At 2.5% Market Penetration 300 600 900 1200 Annual Visits From 2.5% Penetration 1200 2400 3600 4800 Annual Visits Per Tech 768 768 768 768 Techs Needed at 2.5% 1.5 3.1 4.6 6.2 23
Available Month & Annual Garage Gross Profit at 2.5% Market Penetration? New Units Per Year 500 1,000 1,500 2,000 Annual Garage Visits Available 1200 2400 3600 4800 Annual Visits Needed 768 768 768 768 Per Tech Techs Needed @2.5% 1.5 3.1 4.6 6.2 Mo Gross Per Tech $19,046 $19,046 $19,046 $19,046 Total Mo Gross Profit $28,569 $59,042 $41,611 $118,082 Annual Gross Profit $342,828 $708,504 $499,332 $1,416,984 24
What You Can Do - Specifics: 1. Contact Local Parts Suppliers Primary & Secondary NAPA AutoZone CarQuest Worldpac Mighty - Etc. Reset Inventory & DMS Controls 2. Locate A Mail List Of Second & Third Owner Vehicles RL Polk City List Garage Predictor Lists Marketing Plan - Nick Pizza Ph (800) 982-8629 Tapping The Current Customer Base Fleet Owners Yellow Pages, Chamber, Internet 3. Interview Current Staff Vs Outside Candidates Garage Service Manager Technical / Parts Knowlege Repair Technicians Component Repairs vs Replace 4. Review Facility Utilization Separate Garage Staff Prepare Stalls Shelving For Parts 5. Establish Forecasts & Budgets Marketing Budget (Up to 6% of the Sales / 12% of the GP) Garage Manager Pay (Up to 12% of labor and parts GP) Additional Computer Cell Phone Tech Cost (up to 30% of Labor Rate) Fixed Labor Rate 6. Line Up Available Tech Information JustAnswer.com Parts Suppliers IATN.com Etc. 25
What Others Are Doing Net Profit has conducted five Garage workshops as general sessions as well as sessions to individual dealer groups. Options utilized: 1. Integrated Into Current Shop Environment 2. Expanded Current Internal Shop 3. Purchased Independent Shop Moving To Dealership 4. Developed Garage In Separate Building On Lot In most dealer environments, additional skill sets were needed for the Garage initiative, so employees were shifted within and between departments, or added from the outside. 26
What s Next? To assist dealers in making this highly profitable, but sophisticated move, Net Profit has developed a thorough three-day workshop which includes: 1. An Individual Garage Market Study Size, Opportunity, Target 2. Individual Facility Utilization & Staffing Study 3. Skill Set Descriptions (Service & Parts) Written Job Functions Hiring & Selection Options Garage Pay Plans & Budgets 4. Independent Shop Roundtable With Actual Shop Owners 5. Aftermarket Parts Options DMS Sourcing & Setups Presentations From Aftermarket Parts Suppliers 6. A Complete Marketing Plan Including Budgeting 7. Financial Forecast: Sales Gross Expenses - Net 8. Written Business Plan Including Installation Calendar Dates The Garage installation process begins immediately upon returning! 27
What You Will Learn In The Garage 1. How Independent Shops earn 50% Parts GP. 2. Techniques Independent Shops use to create absolute loyalty. 3. Why Independent Shops enjoy 3 hours or more per RO. 4. How Independent Shops compensate technicians & managers. 5. How Independent Shops approach RO write-up. 6. How Independent Shops approach the Fleet Business. 7. How Independent Shops utilize various suppliers. 8. The types of Marketing Independent Shops utilize. 9. The profile of a successful Independent Shop. 10.Why Garage customers don t choose dealerships. 11.That Any Dealership Can Win Back And Maintain A Piece Of This Highly Profitable Market. 28
The Garage Workshop Sept 22 24, 2009 Birmingham AL Details and Registration at: www.netprofittraining.com Questions: Ed Kovalchick Ed@NetProfitGroup.com Ph 1.205.663.1962 Garage Workshops are available for Dealer Groups! References Available In a hurry Need help now? We will help you install The Garage at your dealership. 29