The Dealership Business Model Part 3 | SDR #309

Welcome to the big show. Today we have part three in our series of the Dealership Business Model. And we're going to be talking about Christian's favorite subject. Math.

I love math.

The math, the financials, how it all interplays. And there's going to be some things in there that you hadn't thought of and some things that maybe you've experienced and handled right or handled wrong. But we're going to shine some light on where the opportunity is. So this is the third and final installment of the Dealership Business Model. I'm Chris Collins, and this is Chris Joan.

Hello, everyone.

And Hoagie.

Hello.

Right now on Service Drive Revolution.

So this is part three of Dealership Business Model. If you haven't watched part one and two, I would encourage you to go back and either listen or watch those. But this one is about the math. Understanding how math affects the dealership business model and success. And even to the point, I would say that I see systems as math. Do you see that?

Yeah, for sure.

Like, it's all math.

But we kind of came up with a list of things that are. That are negative outcomes of not paying attention to the math. Of course, right at the top of that is not being profitable, not understanding how to be profitable. So if you don't understand the financial statements, you don't understand pricing strategies and you don't understand how to sell the stuff with the higher margins and you're just running oil changes through you. You're not going to be profitable. You're not going to be as profitable. We do sometimes see a service department that has very low fixed expense and they're running a quick lube as fast as they can and they're still squeaking out a little profit. But it's because they have low overhead. It's not because the business model works.

Yeah, they're losing more than they're making. It's a false win.

And so understanding that, so understanding the financials. And so when we talk about the financials, the first part of that is having a relationship with the office manager. And in a lot of dealerships, unfortunately, the office manager is not vested in the performance of the service department. And the times that the manager will talk to the office manager are times when they want you to measure the oil in the ground or they want you to clean up a warranty schedule or they're bugging you about openros. That's it. Like you're not sitting with the office manager and designing an outcome, getting their input and advice on what's in what account? How could we do this better? And collaborating, it's very much like a, you know, a stepfather, stepchild type relationship where you have to deal with each other because mom fell in love with the guy, but you don't really like him. Did you ever experience that, Hoagie?

Nope, didn't experience that. The. I think one thing to think about with this conversation too, at the, at the beginning of it, if the goal is, if the goal is profitability and customer experience like we talked about, and that should be the goal of every business, I think a business by definition is growing or dying. If it's not, you know, growing in those two areas, you know, it's dying. And. But it's interesting to me when we talk to service managers and we talk about this internally a lot, but if you go ask a service manager, hey, how's the service department doing? They'll usually respond with one of two things, either like proficiency or productivity or something. Oh, we're doing pretty good. Proficiencies up, you know, 7% or whatever.

Guarantee they're losing money if they give you their proficiency rating like that.

Right.

Guaranteed.

Or they'll tell you gross maybe or something like that. But if you go ask anybody on the executive team or owner, hey, how's service doing? Not good. We lost 40 grand. They're talking about net profit. And so I think when you start talking about the net, how it's communicated and how much the industry's failed in that regard with fixed stops, is, is substantial. Like it's still to this day, 100%.

There's nowhere besides here for them to really understand how to be effective. You can learn debits and credits, but you don't know what to do with it. Yeah, it's, it's, it's too complicated. So the same thing when you ask an office manager, you know, well, the way that I would frame it with office managers, I'd say, hey, so this is what we're at. We're losing money. We're barely making money. We should be making this. I'm going to be spending a lot of time with the manager. We're going to fix some of these systems. Is there anything in there you want me to fix for you? And that was always a test for me to see how tuned in the office manager was. And 90% of the time, like, it was rare that I would get somebody to be like, oh, yeah, well, how are you going to make them profitable? Yeah, that would be great. Like, let. Most of the time it's like, you know, the warranty schedule or whatever that they're not vested in the outcome. They're vested in protecting their department. And they. They run it more like a DMV than they do something that is, you know, having an effect on departments that are moving commerce like that are making money. And so that's a failure of our industry, too, is that we've never bridged that gap. We've never given the office manager a seat at the table to that they are involved in collaborating with the profitability in a meaningful way. They're just. They're just reporting it. So they. It's like if you can run the report but you do nothing with it, basically is what happens. They're protecting the data. And then they're also very sensitive about if they've been, you know, for the last 10 years, they've been putting something in the wrong place. And one of the first ones to come in and say, oh, why is that going there? Isn't it supposed to go here? They. That hurts their feelings so much. They just, you know, they can't handle it. It's a. It's a interesting dynamic that most of the time is working against success, not, you know, for success in that way. So the office manager, the, the other thing with math is that we tend to follow the competition and pricing.

So.

So how many managers can tell you what everybody else is charging for something with no understanding of the competition's profitability? Or like there's some meeting in town every week where people are comparing the cost of tires or alignments. Like, you know, it's. It's happened a few times where I've gone into a store, fixed the store, and then the guy across town that everybody was copying says, hey, can you come fix my store? And I go in there, and they were losing money.

Yeah.

And everybody was like, oh, well, they're at 74, 95 or whatever it was. And it was like, yeah, well, they were losing a hunk of money at that. So you were copying somebody and you don't know the full story.

Yeah.

You're just. You're just copying the thing that you can see from the window.

Yeah. Yeah. It is amazing to me how just in the general business world, people price their business to be. To be profitable. Right. But in service, we price it off of the feeling and emotion of everything you're talking about. And all of us in our own personal lives have examples of driving past two other places paying twice as much because I like going and doing business with that person.

Walk out with a smile.

We've all experienced that. But then when we apply it back to our own businesses, especially in service, we're guilty of it. Of.

Well, we're not answering the phone and making it easy to make an appointment. But we're worried about, you know, we're not doing the basics. Yeah, right. But we're worried about that. Which is funny, right?

I remember when I was a brand new client and Chris came into my store and, and he's like, he asked me about alignment prices and like, how much are you charging for an alignment? And I told him how much it was. He's like, oh, how'd you get that number? I'm like, I don't know. And I did the thing. He's like, well, you know, they have a meeting, they have a meeting at the Eagles Lodge every Tuesday night and they talk about alignment purchases or alignment prices. And literally before he told me that, he made the whole thing up. I'm starting to Google on my computer.

Like, eagle, I gotta get in this meeting.

I'm like, oh, what do I gotta do to go to this? Yeah, it was one of the funniest things. I was like, I totally bought this story. And I'm like, oh, that sounds like.

A really good idea.

Why don't we all collab?

I wonder if they'll let me bring donuts.

So funny.

Funny.

The, the other part of that that's funny is oftentimes over the years we get the, the dealer who built a new building and now he's losing more money than he was before because he's got a service manager that thinks that he should be pricing things the way that they were priced when they were in the barn.

Right.

And in it, you know, you're like, yeah, but we just spent $20 million on this building. You don't think that's worth more? Like I, when I was an advisor, I thought it was worth more to get me. Like, I was like, you know, there was one other advisor there that, what, that I thought was really good. But the rest of them, compared to, to what I was going to do, I thought I should be able to charge more. I literally thought that. And you know, you build a new facility, you, you have to design the math around what your expense structure is to, in what your, you know, what your sales are to create an outcome. You can't just say, well, that's what the market's doing, so we're going to do that. Yeah, it doesn't make any sense. You have to have some basic understanding of what it costs to produce that hour of labor.

Yeah. I think people are just waiting on permission. And one thing that I've had happen over and over and over and over again also is, you know, we build a pricing strategy to get profitable and we go and execute on that. And, you know, we're going back to another visit on that store a little bit later on and they're doing a warranty increase because we've got CP effective labor rates up, and they start calling around to those same stores. And if, if we were, you know, $30 an hour higher than all those stores previously, when he went back and did the next warranty increase, guess what all those other stores in town did? We just gave everybody else permission. It's, it's.

Oh, no. I used to tell, I used to tell guys when they would do that, I would be like, why don't you go take that guy to lunch across.

Town, Just have a conversation.

Like he's just asleep at the wheel. It's like old Charlie over there, you know, he's more worried about making coffee in the morning than he is. Why don't you go tell him that he's 39.95. Alignments are from 1972 or whatever, but it works too, is just go take them to lunch.

Yeah.

The, the next thing is the shop. And there's a bunch of things in the shop that happen. From not understanding the math, the, the first one that we hear all the time is, well, I lost him over $2. The tech. When they're, they have a tech and they lose them over $2.

Yeah.

If you understand the math, you would never lose anybody over $2. It would never happen.

The customer is paying for the tech. You're not. Like, it doesn't make any sense. Like, I've had service departments that were paying technicians.

I want to say, like, the highest is 70 an hour. Is that about right?

With. Without blinking, like, because that's what the area was and that's what it required and the customers were paying for it. There was demand. You know, when we came into the situation, they're booked out a month. They couldn't get the work done. They couldn't get tax. And I mean, in some markets, you, you can charge $300 an hour for heavy duty work. Like, it just is what it is. And so the customers are paying for it. You want to design the shop and the capacity and culture that you want, and then the customer is going to pay for it. If you're doing it right. Yeah, you got to understand how to do it and how to price things the right way, but. And that's the other thing is you have three different types of labor, and understanding how to price those and how to treat each one of them different is a part of understanding the math, too.

So.

And a lot of times we kind of look at them as the same and it's not the same. And the way we dispatch work sometimes to get around something is really odd.

Yeah, yeah.

The.

That. That part of it, too. And then having two technicians to a stall or two stalls to attack, if you don't understand the math.

And how to work around that, you're usually costing yourself money. And you're just doing it because you want the approval and add ad duration of everybody or something. But it doesn't make any sense mathematically to have two kids doing an oil change for. That's five minutes quicker. I mean, the oil can only drain so fast.

Yeah.

And there's only one filter.

Like, Right.

Two people. Unless you're running a pit. It does. And even then, that's questionable whether that's the best way to do it too. But it. A pit would have. You would have a half of a guy. Because you would have two. Yeah, two on the top. Yeah. Right. And that, you know, I've seen that work. But you're charging 90 bucks for that oil change, not 39.95 for it to work. And so that part, too is like how many texts to a stall? And, you know, alternative schedules. Like, there's ways to schedule text. If some of them need two stalls, then you got to figure out a way to work around that without capping your capacity.

The other thing with. With math is that a lot of times we judge our success by how busy we are versus how profitable we are.

And it's just weird that we chase traffic.

And traffic is the enemy of having good systems. Like, we just want that chaos like we were talking about before. Like, we just want to feel like we're on the verge of chaos and that's how we feel alive because of our childhood trauma or something. Like, we only feel good in dysfunctional relationships, and we only feel good if we're, like, on the edge of disaster. But, like, I just don't. I don't. I never have wanted to live that way. I want to design something that is, you know, a little more.

A little more predictable and consistent.

Yeah. For the customer, it is you. You start to tie your identity as a service manager or the industry leads you down a path to tie your identity as a service manager to, you know, how well you can Put out fires. And, and, and it is, it just, it gets you into a vicious, you know, vicious cycle. The other thing with the traffic thing, too, a couple of the GMs in masterclass this week, their, their biggest takeaway was, you know, coming over from, from Variable. They wanted to, you know, understand more about fixed ops and, and how to, to make it profitable. And, and it was great because we've talked about this before on, on our side. So for that to be their discovery through Masterclass was great. Great. And what they, what two of them said was, you know, coming over from the sales side, I just want more opportunities.

Yeah, right.

We just want more opportunities. And so in service, all they want to do is increase RO count and so to slow down and, and maximize. And have strategies to maximize the value of the hour and how many hours we're getting on the ticket.

You know, it's, it's fun to do some of that math and realize I don't need one more car to make my service department profitable. In fact, I think when you start doing the math, you can find a lot of examples and a solid argument that if you're, if you're performing poorly per RO and the, the value of an hour, you increase that traffic and you lose more money. And for whatever reason, that's not talk about in our industry. I just made it.

I just made a connection. Service manager's value is putting out fires. Plowing snow.

Yeah.

Plumbing. So it's essentially like your identity is attached to all of them.

Yes. I don't know.

I don't know what they're eating in sales that their toilets always backed up.

Burritos. It's got to be burritos.

Yeah. The, the thing on our list, too, is the boogeyman. Like, we just believe that there's this boogeyman that, oh, it's so complicated. It has to be hard. It's, you know, when it can be fun and, and, you know, fulfilling, like it can. You can work hard, but the work should be fulfilling. It shouldn't. It shouldn't be empty at the end of the day. You shouldn't just be moving one thing to the other side to move back. To move to the other side to move back. You should be creating relationships. You should be constantly improving. You should be constantly learning and growing. It shouldn't just be the same old sandbox.

That's great.

Yeah.

Can I give you a math analogy to kind of sum up what I've observed over my career? So division is built up of a numerator, a denominator and a quotient. Okay, so the quotient's the answer. And I would suggest that what we've seen more often than not before we start coaching people is that everyone's just waiting around to see what the quotient is going to be the answer, and not realize they get to put the number into the numerator or the denominator. Like, that's how I think of when I think of the. The math that people do for service. They're waiting to just see what the answer is, but they don't realize that they control the problem. That a good summary.

Yeah, I like that. The other thing is that they outsource certain decisions. Like, well, one is software and tablets. Like, we're in love with software, even though we don't pay attention to the outcome. Like, we think for some reason we. We have decided. Like, it is a decision that has been made in our industry by who knows who. But it. The consensus is unanimous that customers want us to use tablets like that. They don't want to come in and sit down. They want you to show them a freaking video, hit their car, and they want the advisor staring at this tablet all the time and trying to get it to work and figure it out or whatever. And that they want to talk about brake fluid. Like, that's what customers want to do. They want to watch many movies about brake fluid.

Like, it's a documentary style.

And it just, you know, hands down, the thing that I learned, a kid who knew nothing about cars, I never talked about the viscosity of brake fluid. Like, none of that. I just said, like, what's going on? I made friends. And then I was like, hey, you're due for this. And they're like, oh, can you do it today? Like, yeah, it was that simple. And nobody was like, well, what is brake fluid do?

Yeah, what is.

What is the. The chemical compounds of coolant? Like, it's so ridiculous.

Yeah.

And so by far and away, without tablets and without all that, if you greet a customer at the car, you make friends with them, you talk about what matters to them, and then you pull them inside and sit them down, you sell more. That's it. Like, there isn't a study. Nobody can show me that tablets at the car create the same numbers. They don't. It's just like a quick lube. It doesn't. You have your least talented people touching the most cars as fast as they possibly can. There's no way that the outcome is favorable. There's just no way. And so the software. And then the other thing that we allow to kind of like we. We give away agency to is the chemical companies and letting them set the times and the prices for stuff. And that, once again, is just the mimetic copying somebody else. Oh, this is what they're doing over there. And it's like, okay, well, we're not them, we're us, and we're going to do it our way. But letting that stuff just kind of go affects the math in a very, very negative way.

Yeah, I mean, that's the list. So talking about the dealership business model, and at the beginning of this, we talked about that it's a franchise. We're not. We're not manufacturing a car or a truck. We're getting that from a brand. And then we're representing that brand. And where our leverage is, is in our systems, in our people, our customer experience, our training.

Right.

And then we talked about the customer experience, and then today we talked about the math. And I mean, what we're trying to do here is kind of share with you what we see in the hundreds of stores that we're in and the years that we've been doing this. But there is a, you know, there is a demand for what we have right now because of sales having a little bit of a glitch and used car prices and equity kind of messing around and customers staying in their cars longer than they ever have. Fixed Stops is a great place to make friends and retain your customers and. And make.

Or not even make, I would say achieve a fixed absorption. That is something that probably sitting here right now, if you're a dealer, you wouldn't believe, but it is achievable. But it's by understanding the financials being very strategic in designing an outcome that we want, not just copying what we've always been doing forever.

Yep. Yeah. And I think one of the most rewarding things in partnering with our clients a lot of times is. You want me to snap.

No, I'm doing it for you.

I think one of the things that's most rewarding in partnering with our clients is.

When they start to understand and realize that they're not near as far from it as they thought. It is a decision.

Thank you, gentlemen, and thank you for. For being here with us. And we'll see you next time on Service Drive Revolution. Thanks so much for watching this episode of Service Job Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out if you have a question you can like us to answer on the show. Call 8333 Ask SDR and.

We'Ll answer your question on the show. That's 8333-ASK-SDR. For special deals on our books and training, head over to offers.chris collinsinc.com. now that's offers.chris collins inc.com I'm Chris Collins, and I'll see you in the next video.

Ra.