Pub. 14 2015-2016 Issue 3

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 4 , 2 0 1 5 BY RAY BRANCH AND DON HELMEY Michael Leboeuf wrote a book titled “The Greatest Management Principal in the World.” The basic premise of the book was this… if you don’t like someone’s behavior, look at how they are being rewarded! If you take this premise and look at the world, it will explain a lot about what’s happening. If you look at howmany ServiceAdvisors are compensated, they typically have a small-to- medium salary, plus a commission on parts and labor sold, plus a bonus onCSI and spiffs. This article will look at a completely different approach that gets the results dealers really want. It seems obvious that if you want to improve gross profit, pay a commission percentage on it. However, left to people’s own doings, they will take the path of least resistance or really get creative, which usually means trouble for your retail service customers. Eitherway, you probably can’t count on the results. On the other hand, if youknowexactlywhat behavior must be done to achieve the desired results, have someone do that exact behavior over and over again and you can bet on the outcome! The less obvious route is to manage the behavior you knowwill produce the desired results, but the trick is knowing what the behavior should be and then being able to measure and track that behavior. That’s what Behavioral Modification Pay Plans are all about. One of the Key Performance Indicators (KPI) of how well a Service Department is doing is Effective Labor Rate (ELR). War- ranty and Internal rates are set by the factory and the dealership’s upper management, so there’s not much we can do to impact those other than influence those decision makers when we can. (NJCAR Note: New Jersey’s Franchise Practices Act requires a manufacturer to reimburse dealers for warranty parts and service at the dealership’s retail rate.) Customer Pay ELR (CPELR) is a different story. Service Managers around the world are trying to manage CPELR. When they try to manage CPELR and dealers incen- tivize their Service Consultants to improve CPELR, they start to hate the oil changes and normal maintenance work because of its drag on Total CPELR. However, you need the oil changes and the maintenance work to build the base, to increase the number of items on the Retail Order (RO), in order to gain customers. But there is a different way to look at Cus- tomer Pay ELR—by dividing the customer pay business into three parts – the Lube, Oil and Filter business, the maintenance busi- ness and the repair business. If we then focus on improving the CPELR for each business, we can positively impact the total number. Customer Pay Repair business- The labor charged is based on a grid or the door rate of the shop. It’s generally much less com- petitive than the oil change or standard maintenance business, so dealers should be able to sell it for the price it should be sold for. That said, the way dealers can improve Customer PayRepair ELR is though Pricing Compliance – selling the repair for exactly (to the penny) the price the grid or door rate says it should be sold for. If dealers sell every single customer pay repair opportunity for exactly what the grid says the labor should be sold for, gross profit will be maximized for the pricing policy they have in place. The behavior is simply this… sell the repair labor for exactly what you should. No discounting. No overcharg- ing. Just the correct price. Absolute, 100% compliance, is a challenging goal. 90% or more is much more doable. In order to put this practice into play, we need a way to count every opportunity to price a repair service using either the grid rate or door rate. Let’s call this KPI “Repair ELROpportunities”. We also need a way to count the number of Repair ELROpportuni- ties that were actually priced exactly what the grid or door rate should have been. Let’s call this KPI “Dones”. new jersey auto retailer 16 Getting All Your Ducks “I wish my people would just do _________. “ Service Managers have been saying some version of this statement forever. Maybe you’ve said it too. Quacking Together! Behavioral Modification Pay Plans…