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May 15, 2020

A Warning to Car Dealers, Brands: Do This or Die

In times of crisis, auto dealerships should lean on their aftersales service and parts sales to keep them afloat. This lesson has been learned time and time again—during the Asian Financial Crisis in 1997, the Global Financial Crisis in 2007, and now it’s something that can be applied with the softening economy brought on by COVID-19.

With the Taal ash fall and COVID-19-related quarantines reducing the total selling days by around three months at best, carmakers expect to see a 20 percent decline in overall sales this year. Adding to that, financial institutions such as banks are expected to tighten consumer lending which lead to  some such as the Association of Vehicle Importers and Distributors (AVID) seeing an even more worrying drop of 40 percent per their estimates.

The drastic drop in new car sales will now put pressure on auto dealerships to start beefing up, and to some extent, modernizing their aftersales service, not just cover their fixed costs such as rent and employee salaries, but to actually survive. New car sales may slow down due to economic factors, but vehicle owners will still need to keep their existing vehicles up and running. And given the extra incentive of those generous, but often draconian warranty policies that car manufacturers throw in nowadays—up to five years in some cases, it covers a time when everyone was enjoying record sales; like the year before the TRAIN Law took effect.

More than just volume, dealers also stand to earn more when they focus on aftersales service. It’s common knowledge that auto dealers earn next to nothing with new car sales (between 4 to 7 percent in most cases), but earn in double figures when it comes to service. While exact data of the Philippine setting remains a closely guarded secret, the U.S.-based National Automotive Dealers Association reports that while service, parts, and body shop operations accounted for just 12 percent of a dealership’s total sales, it accounts for 49 percent of the average dealership’s gross revenue, and 60 percent of its net profits.

All this brings an interesting challenge to how dealerships, and even to how some car manufacturers and distributors work and operate. While new car sales remain the favored child that gets all the attention, aftersales service is, ultimately, the breadwinner in the family.

Reflected in the latest J.D. Power Customer Service Index Study, Filipino buyers are increasingly dissatisfied with dealer service. Most—35 percent - have experienced longer wait times. With new car sales expected to slow down, this is the right time for dealers to make service more convenient and hassle-free.

With social distancing measures in place, dealerships should realize the maximum number of customers that can be accommodated. In this regard, the number of technicians, number of shifts, skill sets, should all be considered to optimize operations in and around the service bays. This can also help in scheduling customer appointments.

And speaking about customer appointments, dealers should start implementing or increasing online scheduling, pick-up and delivery services, and even cashless payments. This is where the future is, the pandemic has only accelerated it.

Dealer principals should also make it a point to visit their service operations to make sure it’s operating running as well as it should—and also to be on the lookout for shortcomings. It is important to know that promises to customers are being kept.

In addition, dealers should take this opportunity to increase their investment in equipment. Not only will this advanced technological equipment reduce the number of people occupying a service bay, they can also improve the efficiency and turnaround of service bays.

If survival through service and parts doesn’t sound enticing enough for dealers, the Service Industry Study from U.S.-based Cox Automotive points out that car buyers who went in for service at a dealer after making a purchase were more than twice as likely to purchase their next vehicle from the same dealership. This is compared to just 35 percent of those who got their vehicle serviced elsewhere.

The coronavirus pandemic has shined a light on the people who often go through everyday life in the shadows, invisible and unrecognized. This includes the grocery store clerks and cashiers, the parcel delivery drivers, and health care workers.

At a dealership, these unsung heroes would include the service advisers, the parts runners, and the technicians. The fate of many dealerships now rests on the shoulders of these people, who often are overlooked and overshadowed by sales and the front of the store. Service is the backbone of an auto dealership; it’s not the back end.

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