Dealerships faced shutdowns and dramatically decreased vehicle sales due to the pandemic; they were already suffering from diminishing margins on new and used vehicle sales, which have continued to erode profits on their variable operations. Their fixed operations division, which services customers’ vehicles, has had to carry the dealerships through lean times. Growth in fixed operations will be key to helping dealers survive until vehicle sales start to recover after COVID-19.
But there is a bright spot: COVID-19 is helping create a shift in how dealerships interact with customers, providing OEMs a chance to drive this change in a beneficial way. With the threat of the virus, customers were afraid to go out for routine maintenance as well as required repairs on their vehicles. Often, owners would simply put off their service until a later period or try to find a safer way to handle their tasks. Some vehicle owners, for instance, had started to look for contactless options where they could pay through their phones, drive into a bay to have service performed, and leave without ever opening their vehicle door. COVID-19 safety protocols are also limiting interactions between customers and service writers; as a result, customers and dealerships are embracing more online services to maintain social distancing. This has also allowed some innovative dealers and OEMs to roll out alternative options to benefit both their customers and help their business remain healthy.
Online vehicle sales nearly tripled since the onset of COVID-19 as some major dealerships saw growth from around 2.5% to more than 7% in April. With contactless sales and vehicle drop-off, dealerships will find it harder to reach customers with their service and sales representatives to build a relationship. This will force OEMs and dealers to rely on more contact and education through digital platforms. Servicing vehicles will likely become even more transparent. However, customer understanding of service options will likely require better education, as service writers will not be present to explain the differences in options. OEMs will likely try to reach more customers through digital solutions as they attempt to build a new type of relationship without the usual personal contact.
One of the innovative contactless options is the “pick–up and drop-off” service, in which a dealership’s employee or a third-party service drops off a loaner car, takes the customer’s vehicle to the dealership for service, and then returns it to their home or business. Volvo had the foresight to roll out the “Volvo Valet” before COVID-19 began to wreak havoc on the FWS channel. Their phone app/online–based service through which customers pay for the service has resulted in a more than 20% boost in business compared to Volvo dealers, which did not partake in the Volvo Valet service. OEMs have been actively helping their FWS drive fixed operations growth, as Volvo did in developing the app, promoting the service and even helping reimburse dealers for part of the pick–up and delivery costs. OEMs such as Volvo are doing this to help their FWS stay profitable and sustainable while also helping to drive customer retention. Customers who are satisfied with the service they receive from the FWS and return more frequently are typically more likely to patronize that dealership and OEM for their next vehicle. Customer retention has been a driving factor in OEM programs via their dealerships’ programs such as free maintenance for a period of time (for example, Toyota’s two years of complimentary maintenance); extended warranty programs; and prepaid maintenance programs. Dealerships will sometimes even offer customers a lifetime of free oil changes to help retain them and build brand loyalty.
In recent years, customer retention has been rather flat to declining. While luxury brands tend to have better customer retention, both premium and non-premium brands have started to see their customer retention trend downward in the one- to seven-year–old vehicle category. This decline has been more drastic in the eight-plus-year–old vehicle category, where customer retention tends to drop below 15%. With the fixed operations side of dealerships providing around half of the business’ profits and seeing their share continuing to grow as margins in the sales side continue to slide, dealerships and OEMs are both actively looking to drive more traffic through their service and parts departments. This is likely to see greater investment not only in capital and incentives but also help in advertising and providing customers with a better experience.
Passenger car motor oil (PCMO) from the FWS channel accounts for around one-fifth of overall PCMO demand in the United States, and oil changes are one of the main reasons customers come in for service. Kline’s research into PCMO demand in the FWS channel identifies opportunities that the pandemic and shift in the FWS channel have created. To get more insights, please subscribe to our newly published report Franchised Workshop Channel in the Consumer Automotive Segment: Market Analysis and Opportunities.
