Auto dealerships experience a massive drop-off in service and repair work following the end of a vehicles’ warranty. It’s a sudden and steep drop with devastating financial implications for auto OEM’s and dealerships alike.

Even the best dealership service departments are not immune.  According to Steve Finlay of WardsAuto, citing a J.D. Power and Associates’ Customer Service Index Study, customer retention rates for maintenance and repair are often less than 60% and only top dealership networks with superior reputations for service do better.

Carlisle and Company research shares similar results with one of their clients reporting up to 50% loss in customer loyalty on the day the warranty expires.

Why the Drop?

Soon after the sweet romance of the new car purchase in the flashy front showroom, owners are whisked away to the backroom service department for the rest of their auto ownership relationship. The experience they have in your service department over the following years has a significant impact on their loyalty and satisfaction.

Finlay again sites Jon Osborn, J.D. Power's research director: “Since dealer service is the last touch-point in the vehicle ownership cycle that auto manufacturers have with customers, providing superior levels of service can leave owners with a lasting favorable impression of the brand”.  Poor impressions damage brand loyalty and ultimately reduce future service revenue and new car sales. Customers simply seek out independent service shops or change brands all together.

Losing 40-50% of service business after the vehicle warranty ends suggests that dealers are not giving owners a lasting favorable impression.  

Why is post warranty revenue important?

In today’s tough economy, drivers are purchasing fewer new cars and keeping the cars they do have on the road longer. This has pushed the average age of a vehicle up to 10.8 years.  Savvy automotive OEM’s and their dealers have recognized the shift and are looking to that lost post-warranty revenue as a source of additional profits to offset fewer new car sales.

Both OEMs and dealers are eager to capture a larger piece of the post-warranty pie, which can add up to serious profits given the increased length of ownership.

So, what’s the issue?

Carlisle and Company is studying the challenge. Some of its preliminary findings are that customer expectations are not in alignment with the service practices of dealerships, which leaves everyone (the OEMs, dealers and customers) unhappy and probably a little bitter.
 
Carlisle identified the top 26 factors (grouped into 5 categories), which customers value most and compared that against what service departments offered. The results show that dealers aren’t stacking up.  “According to the customers, their business migrates to operations perceived as more trustworthy, easier to do business with, and lower priced”.

What can be done to earn more post-warranty revenue?

Auto OEMs and dealers can eliminate some of the gaps by understanding the expectations of customers and delivering what they want. One tool that has proven to accelerate repairs, increase quality and improve customer-dealer-OEM relationships is Enigma’s InService® EPC (Electronic Parts Catalog).  A well-executed EPC system streamlines the dealer’s diagnostic, troubleshooting, estimating, parts availability and ordering activities, which accelerates repairs, improves estimates and increases quality (first time fix). The right EPC also provides OEMs with on-demand analytics and dashboard reports so they can spot service trends faster, and minimize customer snafus before they become a recurring issue.

InService EPC makes it easier for dealers to communicate openly and effectively with OEMs and to answer customers quickly and accurately, which helps them build a long-term, trusted relationship.  

And as we’ve learned from the J.D. Power and Associates’ Customer Service Index Study, top dealership networks with superior service retain a higher percentage of maintenance and repair dollars.

According to a recent Carlisle & Company report, when it comes to satisfying the needs of automotive parts managers, “the industry is collectively raising the bar for average OEM parts performance.” Furthermore, “the gap between the “best in class (BIC)” and “worst in class (WIC)” performance has been shrinking.” However, the detailed survey data shows room for improvement because OEMs received high scores (close to 100%) for supply chain issues but much lower scores for sales and marketing issues. According to Carlisle, “Clearly, the industry is doing a better job of meeting our customer’s expectations with respect to supply chain than with sales and marketing issues.” The question is what to do about it?

Carlisle doesn’t address how to resolve the sales and marketing issues; however, our experience with OEM customers indicates that sales and marketing problems are often related to cumbersome, out-of-date parts and service catalogs. It should be obvious that fast delivery doesn’t help the dealer if the wrong parts were ordered. When OEM products have multiple option packages, or multiple product lines, it’s critically important to give Parts Managers accurate information. This becomes even more important as the complexity of the OEM’s product increases, because the dealer needs to know if any components have been revised, superseded or made obsolete by the supplier. (When the latest electronics components are factored into this discussion accurate information cannot be over emphasized, especially when software is tracked and managed like a discrete part.)

Parts managers tend to be happiest when supply chains are running predictably, service is happening quickly and costs are being kept low. Making sure managers and technicians quickly find the right parts for a specific problem is critical to achieving that goal—and Enigma InService® EPC can help. While other solutions focus on automating inventory and logistics (the supply chain) Enigma focuses on automating the delivery of accurate information (online or offline). After all, it’s hard to make good decisions off bad data. Overcoming the parts manager’s sales and marketing issues will require both approaches, but the result will be a dramatic improvement in customer and dealer satisfaction—for any industry.

A recent blog post by Carlisle & Company highlighted an interesting problem for automotive OEMs and their dealers; they’re competing against independent repair facilities (IRFs) online and in the social media outlets, and they’re losing.

Carlisle & Co. wrote:  “The internet is the next consumer “service” battlefield, and there seems to be only one army out there. Social media and third-party sites are foot soldiers and mercenaries of the independent service and parts providers.”

The blog discredits many of the consumer-oriented review sites that are out there, providing some good reasons and evidence for their indifference.  In a nutshell, the blog says that John Q Public thinks dealers are more expensive than IRFs, and John Q Public rails about it publicly—and inaccurately—all the time on the numerous consumer review sites. The blog argues that the facts are on the side of OEM-franchised dealers (i.e., it’s more effective to have your car serviced by a well-trained, well-equipped, dealer-certified service technician); ergo, dealers and OEMs should be using the internet more effectively to proclaim the truth and defend their turf.  That’s one reason why Carlisle & Co is hosting its Digital Summit this week (October 15), which will discuss how dealers and OEMs can leverage the Web and social media to drive both business and customer satisfaction.

The Carlisle & Co. blog post makes many recommendations, regarding marketing tactics (SEO & SEM), consumer education, lobbying, and providing useful content on their sites, etc. From Enigma’s perspective, we are especially intrigued by the blogger’s advice to provide “Sticky Content.”  The writer states:  “Customers only return to websites that provide robust information that has high quality broad-based utility and provides simple, tangible value. It has to be at the top of the list of places-to-shop. It needs to be the portal to OEM owner centers, vehicle shopping sites, service parts information, recall notices, user manuals, service intervals … and much more.”

OEMs/dealers own vast reservoirs of parts and service information; is Carlisle suggesting that service and parts info should be broadly distributed to consumers as well as dealers? If so, this might be a welcome second step towards improving customer satisfaction. But this raises another question: how many OEMs can confidently say that they have taken the first step, which is to effectively create and distribute updated parts and service catalogs for their dealers, never mind publishing some of that information for John Q Public?  The technology to create and distribute parts and service information is already available. (Full disclosure; Enigma provides electronic parts catalogs for automakers including Ford and Volvo.)

 We commented before on an earlier Carlisle blog post, which reported that in a survey of 9,000 dealer fixed operations managers on the subject of OEM support, the lowest scores were for technical support. We say the solution to improve technical support is to automate delivery of updated service/parts information and to easily integrate that content with existing parts inventory and service management systems. This is the type of system that has allowed our OEM customers to improve dealer support—increasing service bay throughput by 12-18%.  We all know that equates to more revenue per service bay (happier dealers) and faster service (happier car owners). Though it’s true that some dealerships already provide faster, better service compared with IRFs, they can improve even more in this category by having more accurate, easy to use parts catalogs at their fingertips in the service operation.

Perhaps sharing some service information more broadly, via the Web, with aftermarket customers would build customer loyalty.  Hopefully most OEMs are already invested in the first step, which would be making sure that their dealerships have accurate, updated service information. Then they would have an easier time of transferring some of that information to the public Web sites. We realize that “sticky content” is just one item on the long list of suggestions from Carlisle & Company, but if OEMs and dealers can successfully promote it, it might help win over the John Q Public reviewers and their followers in the social media sphere.

Lots of OEMs fail to provide useful technical support for their dealers. Recently, Carlise & Company started reporting results from their 2009 NASPC North American Automotive Service Manager Survey. Responses were received from over 9,000 dealer fixed operations managers representing 20 different brands. (Therefore, the survey seems to have statistical significance.) In a blog titled, “Decoding Satisfaction,” David Carlisle begins to highlight some findings that indicate a real problem for automotive dealers. He notes that, “’Technical Support’ is the one area of the survey that gets the lowest scores from all 20 participating brands—it is pretty close to the heart of a fixed operations manager.”

Carlisle uses the scores for Overall Service Satisfaction to break down the data and focuses on two categories of dealers, those that gave their OEM a rating of “highly satisfied” and “somewhat satisfied.” (He explains why those two categories in his blog.) To detect any trends, he then compares each score from the detailed questions to the Overall Service Satisfaction score. The resulting picture—using red, yellow and green color-coding—indicates that dealers are comfortable with the quality of OEM technical content, finding it easy to use and comprehensive. On the other hand, technical and parts support (online and phone) is an issue, across all brands.

I bring this up because many OEMs have been trying to improve dealer relations and dealer support. One approach, taken by many, is to improve technical content—manuals, catalogs, service bulletins, etc. The problem is that just as manufacturing a great car does not guarantee great sales, writing great content does not guarantee great customer/dealer support. Based on our experience, OEMs have been spending too much money creating wonderful technical content and not enough helping dealers make use of that content. A lot of critical information remains stand-alone, with no easy way to deliver and integrate it to dealer management and business systems. As a result, OEMs’ investment has not improved dealer throughput, or customer satisfaction and loyalty. It’s wasted money.

As if to prove the point, every time an OEM asks Enigma to speak with their dealers we hear the same two questions, ‘Will it help me find/order the right part faster?” and “Will it accelerate the diagnosis and repair?” Carlisle’s survey results prove that an OEM can produce the best technical content in the world but if it doesn’t help dealers improve their business it’s of little value.

The solution is to automate delivery of updated service/parts information and to easily integrate that content with existing parts inventory and service management systems. This is the type of system that has allowed our OEM customers to improve dealer support—increasing service bay throughput by 12-18%.

Based on dealers’ low scores for technical support, there is a clear opportunity for OEMs to improve the situation and gain a competitive advantage in the marketplace. There will always be disagreements between OEMs and dealers over things like pricing strategies, warranty programs and franchise requirements. But when dealers start complaining about something like technical support—a problem fully within the OEM realm of control—OEMs must offer a solution. With years of experience helping some of the most sophisticated OEMs improve customer and dealer support, Enigma helps OEMs deliver the solutions their dealers need.

Following up on an earlier blog post titled “OEMs and aftermarket parts—a bigger piece or a bigger pie,” I wanted to mention a blog post by Carlisle & Company titled “Recession Busters and Low Hanging Fruit.” The article points out that there are some pretty straightforward steps that OEMs can take to increase market share for aftermarket parts and service.

According to Carlisle & Company, “…take it as a fact: customers go to your websites to learn about service and parts. Next, regardless what segment you are in, what’s important to customers of service and parts? We’ve really nailed this one over the past several years: (1) trust, (2) value, (3) cost, and (4) convenience. That’s pretty much it. Next, what’s important to the OEMs? (5) High service retention. Finally, what’s important to connecting these five things together? (6) Ease and (7) Innovation. It has to be easy for customers to get relevant information … or they will rely on other information sources and common opinions from their cousin Goober.”

If Carlisle is correct, and our experience shows that they are, then OEMs clearly have the ability to increase revenues by developing a highly effective aftermarket. Let’s look at each of the seven steps listed by Carlisle:

1. Trust – Customer trust for the OEM, and for the dealer, requires consistency. Ensuring that service and parts are consistently diagnosed, repaired and/or delivered builds trust.
2. Value – Value is measured by the customer. The right balance of price, performance and quality creates good value.
3. Cost – Cost, as a competitive differentiator, is sometimes overestimated but if trust and value haven’t been established then price becomes a major factor.
4. Convenience – Convenience may be associated with value, but it’s different. Customers will pay more for things of similar value based solely on convenience.
5. High service retention – High service retention, or repeat business, is the direct result of OEMs and dealers providing trust, value, cost and convenience.
6. Ease – Ease of access to relevant information is the key to tying together steps 1-5. OEMs know it but they don’t always know how to achieve it.
7. Innovation – Innovation is required to achieve each step, and is currently lacking from the approach of many OEMs and software vendors. The key is to focus less on the IT department and more on the line-of-business and its customers, dealers and distributors.

To innovate, and make it easy to order parts and perform service, OEMs must leverage their intellectual property with a dynamic, online/offline electronic parts catalog (EPC). Since OEMs are the ones with the most accurate service and parts information, their EPC should always be up-to-date, which would pave the way for establishing trust. As long as cost is set “close enough,” dealers can leverage the convenience of a one-stop-shop of service and parts information to consistently deliver quality and performance, which will establish real value in the mind of the customer. This ultimately leads to high service retention, which benefits both the OEM and the dealer/distributor.

For me, the most important words in that Carlisle quote are “ease” and “innovation.” When Enigma talks to customers, dealers and distributors, without a doubt the number one request we hear is, “please make it easier to work with the OEM.” What they mean is that they want fast, accurate, integrated aftermarket systems that help them identify and order the correct parts and then quickly perform the right service. The seven steps towards aftermarket success are spelled out; now OEMs have to take them.