How Dealership Technology Can Boost Fixed Operations and Strengthen Customer Loyalty
Part three of the series: Why Technology is a Must-Have for Car Dealerships in an Expensive Market
By Solange Velazquez, Managing Director
When most people picture an automobile dealership, they think of a showroom lined with rows of shiny new cars. But auto dealerships have two lines of business: sales of new/used cars and fixed operations, and the latter is by far the larger profit center.
In the first part of this series, we explained why technology is important to helping car buyers at the start of their car-buying journey. Part II highlighted the technology simplifying the financing and insurance process. Our third and final part of this series explores the technology that is helping to drive engagement—and customer retention—after car owners drive their purchases off the lot.
Fixed Operations Drive Dealership Profitability
For car dealerships, the biggest profit center is fixed ops (service departments and parts), which account for an average of 12% of revenue, 60% of net profits, and approximately half of gross profits. In contrast, new car departments rarely deliver profits on their own. Notably, new-car profit margins are often negative given the complex incentive agreements among franchised dealerships and manufacturers.
While research has shown that franchised dealerships remain the top provider of service and maintenance, they are losing market share to independent service providers. According to Cox Automotive, dealerships accounted for 30% of all US service visits in 2023, down from 35% in 2021.
Most dealerships recognize the urgency of solidifying their customer base during the warranty period, which usually lasts three years or 36,000 miles. Once warranties expire, customers start moving their business elsewhere. However, lost customers to independent service stations and repair shops doesn’t have to be a foregone conclusion. Studies have shown dealerships that deliver superior service can retain 80% of customer maintenance and repair dollars.
Fortunately, new technological tools allow service stations to offer a personalized customer experience that can help them retain this business throughout the warranty period and beyond.
Using Technology to Provide More Personalized, Efficient Service
Typically, service centers notify customers when it’s time for their six-month routine maintenance visit. With new technological tools, service departments can monitor and address potential problems in real time, notifying drivers to schedule a visit as soon as a problem is detected, and thus lowering repair costs and preventing more serious problems from occurring, which, in turn, can help to build customer loyalty.
Dealerships can also use chatbots and virtual assistants to help customers with scheduling support and obtain answers to common questions, freeing up employees to focus on more critical issues.
Additionally, technology can support upselling. With predictive maintenance, service departments can monitor for wear and tear on parts, including brakes, batteries, and tires, and then issue reminders and offers based on the individual vehicle’s specifications.
Streamlining Inventory and Staffing
Beyond customer service and support, technology can improve other important functions within fixed ops and help drive increased dealership profitability. For example, with the use of inventory management tools, service centers can order the appropriate number of parts to avoid having an oversupply or undersupply. By using technology to support employee scheduling, dealerships can also ensure that they have proper staffing levels to meet fluctuating customer demand.
When dealerships use advanced technology to support service departments, there is a greater likelihood that customers will continue their patronage once their warranty expires. It also helps with customer retention, ensuring that maintenance customers become repeat buyers when they are in the market for their next vehicle.
Moving from Afterthought to Nerve Center
Far from an afterthought, fixed-ops departments are the auto dealership’s nerve center, serving as the primary source of profits and helping to cultivate future customers. Owners of auto dealerships cannot afford to overlook this critical function and should consider investing in technology to drive greater personalization and streamline operations.
From car search to financing, insurance and fixed operations, auto dealerships that successfully navigate this challenging economic environment will use every tool at their disposal to set themselves apart from their competitors, reduce operating costs, and build enduring customer loyalty.
