Convenient access to service is an avenue for increased dealership profit

Adapted from the GCADA Newsletter

Where can dealerships find untapped profits? According to a recent Car Charts article titled "Convenience is King" by independent automotive researcher Glenn Mercer, profits are sitting in service departments. The franchised motor vehicle industry currently holds a 30 percent market share of post-warranty vehicle repairs, with an estimated market value of $350 billion. If the industry can capture just 1 percent more of the market, that would result in $3.5 billion in profit, equating to approximately $200,000 for each of the 18,000 franchised dealer rooftops.

Historical data is scarce, but Mercer's research indicates that in the 1960s, the retail motor vehicle industry held a 45 percent market share which declined over the years. Vehicle complexity has grown significantly since then, and even older vehicles now feature technology beyond the average person's ability to repair.

Vehicles are also getting older. The average age of light-duty vehicles on U.S. roads has risen to a record 12.6 years, with vehicles aged six to 14 years expected to make up 70 percent of those in operation over the next five years. In addition, Americans are driving more, with travel rebounding to pre-pandemic levels in 2019, as reported by the Federal Highway Administration.

NADA has found that it costs twice as much to attract and retain a service customer compared to selling a new vehicle. With a 70 percent retention rate, a dealership can expect a 90 percent or better fixed-absorption rate.

So, how do dealerships attract and retain customers? Mercer argues that the independent aftermarket offers a key customer benefit – convenience. There are over 250,000 independent repair facilities across the country, and given that many shops are unaccounted for, customers are likely to find a service near their home or workplace. A graphic in Mercer’s article shows that customers living further away from their dealership are less likely to return for vehicle service, emphasizing the advantage of proximity.

While many dealerships have already implemented several solutions to increase convenience, such as concierge services and extended service hours, Mercer suggests an even closer look at mobile repair services. Repair technicians have been replacing windshields at customers' locations for years, showcasing the undeniable advantage of convenience.

Will customers pay more for convenience? Mercer believes they might, citing the restaurant food delivery industry as an example of consumers willing to pay for convenience. While customers may not pay 30 percent more for automotive services as they do for Chipotle, Mercer argues that the food industry has proven consumers are willing to pay extra for convenience.

This serves as food for thought for dealerships seeking to attract and retain customers.

Read the full original article here:

https://glennmercer.substack.com/p/convenience-is-king?AutomotiveVentures=