Optimism for the future was the buzz at NADA 2012, and there’s good reason for that. New car sales are starting to come back and that is, indeed, cause for celebration.
Dealer enthusiasm, however, should be tempered with some realities unfolding in the service sector, starting with the fact that this new wave of car-buyers will be in the early, much less profitable service phase of the ownership cycle for the next two or three years. Add to that the fact that the average age of vehicles on the road just keeps increasing (hitting a record 10.8 years last month1), putting a greater percentage of vehicles in the post-third year of ownership segment, the point at which dealers begin to lose service business to the aftermarket and independents. Multiply that by an aftermarket segment that’s coming off three years of terrific growth, and still hungry for every customer-pay service dollar they can find (more on that in a moment).
Sum it all up and dealers are looking at a potentially significant dip in one of their major profit lifelines: service revenues, which represent nearly 50 percent of total dealership profits. And dealership profits are already under pressure from the razor thin margin on new car sales.
The best way for dealers to protect profits as new car sales rebound is to have a deeper understanding of what’s really going on with their service customers—and the good news is that there are opportunities ahead, as the overall $215 billion service market is forecast to grow by another 15 percent through 2015. Dealers can take advantage if they understand how the market has transformed. DMEautomotive’s upcoming white paper, "The Changing Service Loyalty Landscape," which is based on a survey of over 4,000 consumers, specifically addresses that transformation, revealing some startling information that defies conventional thinking, for example:
· Dealers are actually leaking more business to aftermarket chains (Jiffy Lube, etc.) than to independent repair shops: only 10 percent of the annual service spend of a dealer’s customers migrates to independents (and independent customers only spend 13 percent of their service wallet at dealerships), but dealers are bleeding nearly three times more business to aftermarket chains.
· Dealers’ loyal customers actually spendless on service annually than the loyal customers of the aftermarket segment, which means they need to rethink their perception that the aftermarket customer merely represents a series of unprofitable $19.99 oil changes.
DMEautomotive data further shows that dealerships are now very dependent on their core base of loyalists: dealer loyalists, however, represent only 23 percent of a dealer's service customers, but they drive 62 percent of total service revenue. While dealers do need to do everything to retain those profitable loyalists, they also need to realize that the 77 percent of service customers that are now non-dealer-loyalists represent a high-value, high-spending opportunity.
With three in four service dollars in play, and the aftermarket poaching their service business, dealerships must target those aftermarket chain customers to maintain and increase their share of service dollars – and to preserve those all important service profits. For more information and a copy of DMEautomotive’s “The Changing Service Loyalty Landscape” here visit www.dmeautomotive.com/solutions/the-changing-service-loyalty-landscape-whitepaper-request.aspx.
Mike Martinez owns brand and product marketing as chief marketing officer for DMEautomotive, the industry leader in science-based, results-driven automotive marketing. For more information please visit www.dmeautomotive.com or email [email protected].
1Average Age of Vehicles Reaches Record High, According to Polk (1/17/2012):
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