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Margin Compression Solution: Fixed Operations

by Dealertrack
on January 24, 2018

Overcoming the Fear of Margin Compression with Fixed Operations

You’ve heard it before, but life is all about facing fears and overcoming difficult obstacles in your way. Sure, the particular fears may change over the years, but the lessons they teach remain as true today as the first time you visited the dentist (okay, maybe the fears don’t change all that much). But, the point is that life has a way of presenting opportunities in the face of fear, a way out of difficult situations that leads to growth and personal fulfillment. And, as a business owner dealing with the fear of shrinking profits, there’s a solution to the ever-present problem of margin compression and it may be closer than you think.

Fixed Ops as a Solution to Margin Compression

As other sources of revenue run dry, fixed operations can provide a steady stream customers and renewable income. In fact, according to economic research company IBISWorld, the parts and services segment was projected to generate 13.6% of dealerships’ revenue in 2017, outperforming both new and used vehicle sales.

Yet, too many dealerships treat fixed operations as an afterthought. And, while it’s true that selling new and used cars is still at the heart of your business, what you do with your customers after they leave the lot will determine how much profit you pull in. By failing to see the profit potential in developing long-term relationships with your customers, you not only lessen customer loyalty, but leave future dollars on the table to get gobbled up by the corner quick lube shops.

And, speaking of the corner quick lube shops, competition for fixed operations has never been fiercer. But, that doesn’t mean you can’t still make money. Do more to increase awareness of your services, including having a dedicated quick lube page on your website, and conducting a well-structured sales-to-service turnover so that every customer is fully aware of your offerings. In addition, leverage the relationships you’ve built with your existing customers by sending out special offers and service and oil change reminders through various digital communication channels. And, don’t forget about the importance of advertising your fixed operations in addition to the great deals on new and used cars.

Conclusion

It’s not fun to think about, but margin compression is the new reality of the auto retail industry. And, it only seems to be getting worse. In fact, the mere mention of margin compression is enough to strike fear into the heart of just about every new and used car dealer. Still, too many are choosing to ignore the problem, conduct business as usual, and hope that it all just goes away. That’s the easy way out, and a great way to kiss potential profits goodbye.

Instead, take advantage of the opportunities presented by margin compression, including the opportunity to renew your focus on fixed operations.

If you’re ready to overcome your fear of shrinking profits, download our free guide, 7 Solutions to Margin Compression, Strategies for Preserving Dealership Profit Margin, to learn more about the issues affecting your dealership.

Sources:

Peters, I. (2017). IBISWorld Industry Report 44111. New Car Dealers in the US. Retrieved August 10, 2017 from IBISWorld database.

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