For dealers who want to keep control of their portfolio but also increase profitability long term, they need to focus on customer longevity.
To keep their customers in a vehicle longer, more BHPH dealers are offering some kind of warranty. Many more have optional service contracts available. Offering mechanical protection up front with the car sale increases the chances that a customer will contact the dealer if the car breaks down. Some warranties include an option for free towing; this gets the car — and customer — back to the dealership to resolve any issues.
With warranties and service contracts, of course, you need a well-run service department. The service department staff needs to focus on a good customer experience, not just keeping a car running. Staff also should understand exactly what is covered under the warranty or service contract in order to communicate with the customer and handle proper repairs.
For example, a dealer may explain up front that the customer has a full or limited warranty on any mechanical repairs for a set period of time. This option is designed to keep in contact with the customer and make small repairs to avoid bigger ones. Frequently, a broken down car equals stopped payments. Instead, the dealer offers to make repairs, eliminates this common excuse for non-payment and stays in contact with more customers.
By staying in contact with customers, the dealer can offer more options to keep them happy and making payments:
- Get the vehicle in and inspect it proactively/make repairs
- Provide a discount
- Add missed payments or big repairs on the end of the existing loan
- Get customers into another vehicle through refinancing
- Adjust the payment schedule to support changes in circumstances
Consider offering regular spot checks on the vehicle or letting customers upgrade to a nicer model while keeping payments the same. Extra service can sustain thousands in payments each month while reducing the need to sell as many cars per month.
One of our BHPH clients recently spoke to us about outsourced bookkeeping services to free up his time to spend on repairs. He calculated that time spent in service was more valuable than in the back office if it meant getting more cars back on the road and payments in the door. In this competitive environment, the industry is advocating decisions like this, focusing more on customer longevity and extra service options. Dealers who free up their time from the back office or sales can focus on service and collections practices, including:
- Reviewing all existing customers weekly and identifying which customers are currently behind on payments.
- Contacting customers and inviting them to the dealership to talk about getting current on payments.
- Offering a list of options that can support up-to-date payments.
- Training staff on a welcoming experience that demonstrates your interest in keeping the relationship.
- Monitoring payment habits and communicating as soon as there is a change.
Ultimately, a customer-centric approach will help your dealership become self-sufficient — with enough cash flow to reinvest in the dealership operations and enough efficiency to focus on attracting new customers (possibly through referral) and new revenue streams. If your vision is also to provide a valuable service to the community for people who need a car and can’t get one any other way, then a customer-centric approach is certainly the right business model.
Cornwell Jackson works with BHPH dealers frequently to adopt new approaches to service, cash flow and profitability. Review our previous whitepapers for your industry or contact us for a consultation. We can even assist with audits, reviews and compilations specific to dealerships to help your dealership access traditional bank financing or working capital if needed. We can also consult on timing and requirements to establish a related finance company as part of BHPH auto financing and portfolio management.
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at firstname.lastname@example.org or 972-202-8000.