The automotive industry has faced numerous challenges in recent years, including the COVID-19 pandemic, key component shortages and macroeconomic uncertainty. That’s why it’s now more important than ever for dealerships to focus on after-sales services to ensure customer loyalty and to grow and maintain a diversified revenue stream while enhancing profitability.

I recently moderated a discussion about these challenges and how dealerships can respond. Joining me in the conversation were:

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  Erik Johnson, BMO Economist, who walked us through the current economic conditions that face the auto industry today and give us a look ahead of what we can expect for 2023.

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  Wolfgang Koehler and Andy Campbell, After-Sales Consultants at Firing On All Cylinders Automotive Consulting, who presented some thought-provoking questions and perspectives regarding after-sales and service.

Following is a summary of the discussion.

Looking at auto sales over the past three years, Johnson pointed out that volumes have been “stuck at almost recessionary levels.” The COVID-19 pandemic and resulting supply chain issues, as well as the semiconductor shortage, played a role in limiting the available vehicle supply. Given that sales of durable goods typically suffer during an economic slowdown, the expectation would be that auto sales would continue to struggle. And as Johnson noted, it’s been a turbulent period for the Canadian and U.S. economies, thanks to aggressive interest rate hikes, volatile energy and commodity markets, and decades-high inflation rates.

But Johnson said because of the pent-up demand over the past few years, there’s reason for optimism regarding the near-term outlook. “2023 certainly won't be back to normal compared to pre-COVID volumes, but certainly it's likely going to be better than what we saw in 2022,” he said. "Looking ahead to 2024, we're optimistic that the market can get back to volumes that look a little bit more like pre-pandemic levels.”

There’s still a large supply hole to fill, however. While auto production through October in both Canada and the U.S. were above pre-pandemic levels, it was still down 11% year to date compared to 2019. "When you add on the fact that there's a fair bit of pent-up demand, production still has a long way to go to meet those needs where supply and demand are in balance,” Johnson said.

Johnson noted a couple of caveats to this forecast. Fleet sales that were lost during the pandemic are not likely to recover. And large interest rate hikes will factor into consumer decisions for large purchases such as cars.

"If you factor in those two things, we're looking still at around 600,000 units of pent-up demand in Canada through November, and around 2.5 million units in the United States,” Johnson said. “In Canada, that's typically around five months of unadjusted sales; in the U.S. it's just over two months. Not only does supply have to bounce back more than normal, but for it to increase enough to make up that gap is one of the reasons why you're likely to see the sector continue to do well from a margin point of view.”

Another upside of the pandemic-driven pent-up demand is that the industry now has better insight into demand trends. “I think the queuing model is here to stay for a little bit,” Johnson said. "The automakers really like that you have a pretty consistent idea of how much demand is coming in the pipeline.”

Regarding the used vehicle market, Johnson said we’re “well into a correction.” Because fleets haven't been buying and recycling new vehicles since the pandemic, supply couldn’t meet the demand in the market. The used market is at the peak of what Johnson termed an “affordability shock,” which isn't likely to improve until interest rates start to fall again. “If you were a dealer that was making tons of your bottom line on the used vehicle market, you should certainly be a lot more concerned about what 2023 and 2024 will look like,” Johnson said.

Given the broader economic and industry uncertainties, maximizing productivity will be a key to dealer success. With that in mind, Koehler and Campbell discussed ways to improve service bay optimization and the after-sales model that benefits both the dealership and employees.

While productivity is always one of the top key performance indicators, Koehler listed a few questions that dealers should consider, including:

Does your service manager know how to calculate and improve productivity?



What is your shop’s efficiency, and who's responsible for it?



How do you rank nationally on the customer satisfaction index?



What is your appointment and scheduling plan? Do you book for the amount of hours or the amount of appointments?



What's your day's supply of parts inventory?



Is your detail business an expense or a profit center?



Are you really in the tire business?

Campbell explained that service technicians give dealerships the gift of their time, and that dealers need to understand how to improve the utilization of that time. He offered the example of a dealership that operated at 72% productivity, meaning that in an eight-hour shift, technicians were working on cars for 5.76 hours a day. That loss of 2.24 hours per day across seven technicians totalled 15.68 lost hours.

“Those 15.68 hours indicated that's two extra technicians I had within my four walls,” Campbell said. “If I look at it by money, the rate at this particular dealer was $139 an hour, we had lost sales of $2,179 [a day]. Multiply it by 21 working days in a month times 12 months, I've got a loss of $549,000.”

Campbell added that when you factor in the dealership’s parts-to-labor ratio of 1.1, the loss equates to $1.15 million. He acknowledged that while 100% isn’t attainable, a 10% increase in productivity could yield significant benefits. In the case of this dealership, going from 72% productivity to 82% would generate an additional $411,000 in sales. “When we look at how much we’re looking for technicians, sometimes they’re already within our own service departments,” Campbell said. “We’re just not maximizing the gift our technicians give us every day.”

So where can you start making productivity improvements? Koehler said that begins with appointment scheduling. “You can lose the service game right away before the game even starts being played, and that's by appointment,” he said. “What time do your technicians start? How long does it take for that first repair order to make it to the workshop? Does the technician stand around for 15 or 20 minutes?”

It’s also about being prepared for the customer, including knowing that you’ll have parts in stock when a customer arrives and performing walkarounds. “A lot of customers who are performing walkarounds with their service adviser start to remember things that they forgot to mention during the appointment, and this adds more lines to the work order and keeps our technicians busy,” Koehler said.

Campbell pointed out that getting to peak productivity works best when the technicians themselves are part of the process, rather than a top-down dictate. “When everyone is part of building this battle plan, they don't tend to battle the plan,” Campbell said. “They stay engaged in it because they have ownership in the way the company is about to run. It all stems from the fact that your employees are building your processes. If they have accountability and ownership of building the processes, it helps sustain it.”

To hear the full discussion, watch our video replay.