With less traffic and lower profit margins, increasing gross profit is an almost impossible task for any sales department these days. The same could be said about F&I departments, which are seeing more cash deals, as well as tighter advances and stricter credit restrictions. So where does a dealer look to increase profits in a market like today’s? What about the service department? It’s the one sales department which consistently sees more traffic than your showroom, and gets more touches than your F&I department.

The fact is today’s economic downturn is playing right into the hands of your service department, as owners keep their vehicles longer than ever before. And with approximately 249 million vehicles on the road today, one has to wonder if all of these vehicle owners have money set aside for any unforeseen repairs. In fact, that’s a perfect discovery question your service writer can use to introduce a service contract to his or her customer.

Like F&I, successfully selling service contracts in the service drive really does come down to process and people. Here are a few tips and recommendations to get you started.

Gaining Profit and Customer Loyalty in the Service Lane

Before I introduce the process for selling service contracts in the service drive, there are a few questions that need to be answered: Why would I want to install this process in my store? And how do I get started and ensure the process works?

There are several reasons why a dealership would want to install this process. The two main reasons that come to mind are customer retention and fixed-operations profitability. Let’s look at customer retention first.

At a time where everyone is looking to retain customers, it’s important to remember that customer retention starts with relationships. And relationships are started by doing something that sets you apart from your competition.

I recommend that service writers ask customers if they’ve purchased a service contract during the write-up process. A “no” answer will set the stage for the service contract discussion later on in the process. Just remember to restate the primary reason for the customer’s visit before moving into the sale of the service contract. This will show your customer that his or her concern is your No. 1 priority.

The best way for a service writer to jump into the service contract discussion is to do what most F&I managers are trained to do: ask the customer how long he or she intends to keep his or her vehicle. This will allow the service writer to select a term that fits the customer’s needs. Next, he or she should explain the benefits of the service contract, such as no out-of-pocket expenses for repairs, rental and towing reimbursement, travel interruption coverage, and, most of all, the peace of mind of knowing one has protection for unforeseen repair expenses.

If properly done, a service contract presentation should demonstrate to the customer that the service& writer is looking out for his or her best interest. It should also go a long way in building trust with that customer, which leads to repeat business.

Another reason why dealerships should look to their service departments to move service contracts is for the fixed-operations profitability. The dealership benefits first through the sale of the contract. It then benefits parts and labor sales when repairs are made. For instance, let’s say your service department generates 1,000 repair orders a month. If you sold the service contract to 1 percent of your customers per month with an average gross profit of $800 per sale, you’d benefit from $8,000 of additional gross per month.

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Think about that example for a minute. You’re talking $96,000 in annual gross profit. And who couldn’t use the additional revenue right now? If your store generates more repair orders than the example above, or you think you can penetrate more than 1 percent of your customer, just run the same calculation. You’ll be surprised by your potential earnings.

Additionally, instituting processes for the service drive to present service contracts means the service advisor will have a long-term client. It also increases the possibility of the dealership selling that customer his or her next vehicle. So, why wouldn’t a dealership want to do this?

Creating the Selling Process

Before creating a selling process for the service department, it’s a good idea for the dealer and the general manager to get together to discuss the additional profit and retention opportunities. Next, get approval for an incentive plan for the service advisors and service manager. This is a critical component, because the only way to achieve better results is if both have skin in the game. JM&A Group recommends no less than $100 per contract sale.

Dealers will also have to establish a retail price. It is recommended that the price of the service contract sold in the service drive be the same as the one sold in the F&I department. Additionally, dealers should direct the office manager to set up an accounting process to record profits and collection of funds through a repair order. A payment plan for customers should also be developed.

Once the process is in place, the service manager should then explain profit opportunities to the service staff. He or she should also provide the service staff with a written process so everyone is on the same page. Dealers should also set up a labor operation code for ease of use during the selling process and for accurate accounting. It’s also recommended that a dealer introduce a weekly tracking report, which helps to create a competitive selling environment.

It is also a good idea to explain the additional profit opportunities for parts sales to the parts manager. The more support you can get from all of the managers the better.

Now it’s time to launch the program. JM&A Group recommends having an initial training/kickoff meeting, which should begin with a message from the dealer. This will generate enthusiasm and send the message that this is his or her program. The meeting should also be used to distribute the written policy, as well as samples of mistake-free contracts. This will help the service staff understand what a correct contract looks like.

As for training, the service staff should go through role playing using established word-tracks. This will help them get comfortable with the process before working with a customer.

There really is nothing to lose by implementing a selling system for the service department. Following the steps discussed in this article will not only result in increased profits, but better customer retention. And in times like today, customer retention is the name of the game.

Jorge Moas is the assistant vice president of field service for JM&A Group, a provider of F&I products in the automotive industry. He can be reached at jorge.moas@bobit.com.