If instead of being a motor dealership, we were a retail supermarket, we would buy land and build a building on it, we would then look to getting a reurn per square foot on our investment.
So if we take the service departments buildings, land , heat light, rent, rates etc, all have a cost that has to be covered.
Traditionally we have based our costings on the number of technicians we have times 40 hours a week, and ensuring each one is 100% productive.
Therefor we have 6 technicians potentially earning 240 hours per week, and if they achieve over that traditionally we pay them a bonus. Whether the recovery rate is £28 per hour or £48 per hour.
The problem our industry is having is that when we are doing our budgets we do not look at return per square foot, we look at return per man hour employed ie hours sold per technician and their efficiency and productivity.
So if we have 6 men but 8 bays the maximun we can produce in labour sales each month with say a recovery rate of £33.60 is 6 X 160 hours = 960 hours X £33.60 = 332256 in labour sales plus maybe some time saved bonus. But we have two bays not producing anything!!!!
If we take the dealerships total overheads say £411600 then assess that 35% of this belongs to service (a) £144060. Then add the cost of sales (b) £111148 Then add service departments direct expenses (c) £171489 adding a+b+c this now gives us the true service departments expenses for 6 technician, and 8 bays. of £426697.
On average we sell around 1800 hours per technician per annum, X this by 6 and now have 10800 hours divide this into £426697 means that to break even we need a recovery rate of £39.50 per hour. Bearing in ming that the average recovery rate in the UK is around the £36.00 per hour mark, gives you some indication why the average dealership is only achieving 1.5% net profit on turnover.
The fixed costs are fixed the overheads are fixed it is turnover per bay which is important not hours sold per technician. At even £36 per hour all we would need with two extra technicians is to sell 21 hours a month out of 320 to break even anything over that would go straight on the bottom line.
But of course I am off the wall we can not increase our head count, Lets just put our head in the sand and the problem of making good money in our industry will always be down to how many cars we sell.
It is time for the industry to get out the the carved in stone way we have always done it and become innovative in their thinking.
Become a business man first, franchise dealer second.
This arcticle forms part of Bill Naylors New book “The Retail Motor Industy Tool Kit” published by Sewells International as an aid to Motor Industries managers studying for degree level 5 NVQ.