Dealers

"Honda motorcycle dealers are independent businessmen responsible for their own business transactions.  In the event of a dispute with your dealer, make every effort at resolving the issue with dealer management."

Thus began one of the paragraphs on transaction remedies in Honda owner's manuals of some years ago.  Honda was communicating something very important that is often not understood even today.  That is, that dealers are all but completely autonomous, and more to the point, they are not simply extensions of the manufacturers but privately-owned businesses.

Many believe a powersports dealership is like a fast food franchise, but it is not.  Far from it.  McDonald's or Chick-Fil-A stores are in fact extensions, satellites, of their franchisers.  As such the home companies impose strict requirements.  Each store answers to corporate.  In many cases corporate outright owns the business, but even if not, they might as well because they do own the building, land and equipment.  Their restaraunts have to charge what the home office says to charge, cook and serve what they say to, even use only corporate approved vendors.  Even the store monthly income statements (P&L sheets) are managed by corporate, with a certain percentage always going back to the parent company.  Your powersports dealer is nothing at all like this.  Not even close.  He or she pockets every net dollar, it's no one else's.  Their financials are their concern alone, the manufacturer has nothing to do with it, and in fact the powersports dealer is awesomely autonomous by comparison with a McDonald's.  The dealer is free to change the color of a new motorcycle, completely customize it or modify it for performance, whatever, and he can charge whatever he wants for it.  He can offer a different warranty than the factory one, or add another warranty on top of the factory's, sell competing brands of bikes in the same store (you won't see that at Chick-Fil-A), almost anything he wants to do.  The manufacturer has absolutely no say in any of it.  

Well, what makes a dealer then?  Here's a simple list.  Here are five things that happen when a dealer signs up.  First and probably most important, he pays for permission to use (and agrees to not abuse) the manufacturer's name.  That is, the manufacturer's name displayed in the manufacturer's way, with logo, script, color, the whole deal.  No one but an authorized dealer can do this.  In fact each manufacturer keeps tabs on unauthorized folks attempting to use their logos and trademarks, naturally.  Second, the authorized dealer has been given the right to purchase new in the wrapper factory parts, including of course whole vehicles in the crate, at a special dealer discount.  This is critical, and again, it is a right no one but an official dealer has.  No one else can even get the parts, let alone at a rate.  Third, the dealer has access to manufacturer information direct from the manufacturer, not secondhand like everyone else.  This is a big deal, and again, it is an exclusive right.  With a few notable exceptions, most of what passes for product information outside the factory's own channels is spurious at best.  So this is a huge benefit.  Fourth, the dealer is endowed with the position of the manufacturer's representative in warranty matters.  That is, when the motorcycle breaks for no fault of the owner's, the dealer does not have to provide remedy on his own dime, that is, as if it were his product, but can petition the manufacturer to play a role in the cost of the repair.  By contrast, a McDonald's store is most assuredly on the hook when you complain of a bad burger.  It gets no help from corporate.  So this is an important benefit.  While many dealers look at this the wrong way, that is, that warranty work often pays less than retail work, and its true that it does, it would be best if they kept in mind the fact that the manufacturer hasn't left them completely on their own as regards warranty.  They could, just like McDonald's, and in a few cases, namely certain very specialized offroad bikes, they in fact do.  Finally, and fifth, the dealer agrees to be the manufacturer's agent in the area of new vehicle preparation.  That is, the dealer takes on the responsibility of actually completing each vehicle's manufacture when he or she uncrates, completes the assembly, and fully prepares the vehicle to be used.  This is probably the most critical of all the dealer's responsibilies from the manufacturer's point of view, as the manufacturer is temporarily exposing itself to much legal liability, in sharing its creative role with the dealer.  Only during a warranty repair is the relationship between manufacturer and dealer at stake as much as it is during new vehicle delivery.

Obviously, there are a lot of details that go far beyond this simple list, but, outside these five areas, the dealer is pretty much on their own.  They can sell what they want, for how much they want, service or not service what they want, in ways and using tools and procedures and  vendors and other resources they choose, set their own hours, location, store size, and determine for themselves the competence, positions, compensation, and size of their staff.  In short, just about everything is in their perview. 

This comes as a surprise to many people.  But it is how it is.  The fact is, when a manufacturer decides one of its dealers is not representing it correctly in some way, it actually has to take the dealer to court to do something about it.  Legally, the process a manufacturer goes through to get rid of a dealer is something like a divorce, though not nearly as easy.  

Now this is not to say the manufacturer leaves the dealer hanging, with no suggestions, training, advice, programs, systems, financial assistance, or any of that.  They do, certainly, and depending on the manufacturer, they do it very well indeed.  But, all of these things just mentioned are completely voluntary; none of it is compulsary.  With most powersports manufacturers, the dealer can take it or leave it.  And there is the crux of the thing.  Folks say dealers are no good and independents are better on average.  Maybe, but if some dealers give the industry a bad name, certainly not all do, and more to the point, as we have just seen, it's a choice.  Dealers that are good are so because they choose to be.  And the not-so-good made their choices also.

And, manufacturers do have some voice.  But, and this is important, whatever leverage the manufacturer can legally apply has to be afforded them beforehand in the agreement both the manufacturer and dealer signed at the beginning of the relationship.  In other words, the dealer has already agreed on it.  You could say therefore that this power comes from the dealer.  In essence the dealer is the orginator of even the manufacturer's power over them, whatever level of power that is.  This is important to understanding motor vehicle dealers.  

Each manufacturer has its own unique dealer agreement.  They don't all read the same, and one big area they differ in is how much power the agreement vests the manufacturer with.  Manufacturers such as Harley-Davidson, Polaris, KTM, BMW and Ducati have some of the strongest contracts in the industry.  Their agreements tie product allocations to performance, for example, including the area of dealer training.  This helps these manufacturers make technical training mandatory.  None of the others do.  That's right.  Most powersports dealers are not obligated to have trained mechanics.  Except for the few brands just mentioned, if these dealers have good, well-trained techs, its because they want to, not because they have to.  Back to that autonomy thing again.

The point of all this is, if you like to think of dealers as bad, however you think of this, remember that it isn't the fact of their being a dealer that makes them bad, if they are bad.  Instead, it is a choice every dealer has, to be a good one or a bad one.  There are in fact some  exceptional dealers.  For example, Yamaha corporate every year conducts a contest to find the best Yamaha dealer techs in the country, and ultimately the world.  It's called Yamaha Technician Grand Prix, and it's a big deal.  The U.S. finalists go to Japan for their shot at the World title.  Some other brands (Harley and Polaris, for example) invest similar effort at technical training, and correspondingly, a higher percentage of their dealers participate and employ exceptional techs than do individuals working for dealers whose manufacturers do not make the effort.  The problem is, again, it's mandatory, and dealers who invest in training are not in the majority.  But, also again, it all boils down to this: the good ones are good because they want to be, and the bad ones are bad because they want to be.  And that's the way it is.

Electronic Manuals

Often I am asked why the Big Five manufacturers don't make their owner's and service manuals available online.  The fact is, they do.  Sort of.  Most of the Japanese OEMs at least post their owner's manuals on their public websites for consumer download.  As for service manuals, Japanese OEM dealers have to pay for the 800+ page manuals, even though they are electronic.  For that reason the manufacturers don't make these same files available to the public.  It would be against the dealer's interests.  Historically of course it has been observed that some dealer somewhere will eventually hand off one of the electronic files to his customer, and the manufacturers, though not in favor of that, are not in a position to prevent it.  Thus eventually the service manuals make their way to the Internet for mass consumption.  

One thing many don't realize about electronic service manuals is that in most cases they are updated when errors are discovered or other changes are needed, on a much more frequent timetable than are paper manuals.  This is a good thing for the dealer, naturally.  

I have said much elsewhere about factory service manuals, including how their creators, the manufacturers, view them.  Check that out on my website.

More on Management

After decades of developing training materials addressing powersports management, I can't help these days but look at all service providers in a special way, whenever I am in a hotel, or a restaurant, or an airport. Basically, I look for signs of good management. You can see it in front line staff. It is easy to tell a plastered-on smile and the minimum customer service murmurings and attempts, from a genuine service ethic that is modeled and instilled by management. And management is where that ethic comes from, good or bad.

I can almost guarantee that the front line staff who merely go through the motions have managers who similarly don't care. In worse case scenarios service people actually complain about customers in front of you, another customer! This, if you will, is evidence of a service business that is in deep trouble. Granted, the hospitality industry has the highest turnover of any other business, so that on virtually no two occasions will you see the same staff. But this is no excuse. Part of having truly service-minded people on your staff, way before even training them right, is hiring them right.

As I say, I can see management in their eyes. I can tell exactly what their supervisor's service ethic really is, just by observing how they treat customers. However they are motivated, mentored, and themselves treated, will determine how they treat customers.

Service Department Profit: Focusing on What Matters

A service department's income statement consists primarily of four key elements: sales, cost of sales, expenses, and net profit. Sales is sales of labor time, of course. That's the department's commodity as it were. Cost of sales is what it costs just to have that time available for sale. Expenses means the department's share of the overall store's expenses. And net profit, the “bottom line,” is what is left when the cost of sales and expenses are subtracted from sales. Service managers need to think about these four elements, and more importantly, they need to focus on those parts of the income statement they likely have the most influence over -- sales and cost of sales. That is, how many dollars come in, and how many of those dollars make it to the bottom line.

Service sales are affected by three things: the size of the department's customer base, the frequency with which customers return, and the per-ticket revenue. These are the easiest and most rewarding things to manage, and all are under the service manager's control. The first one, the department's customer base, is managed by the service manager by two tactics, customer relations and marketing. Effective customer service pays off in word of mouth, the best kind of advertising there is. Marketing on the other hand, for the service manager, means pursuing service sales. You do this by learning to overcome service sales objections and boning up on your upselling skills. You go after fleet maintenance and insurance jobs, and you make “get aquainted” calls to new vehicle purchasers, inviting them in for service. You also pursue service sales by adding value. If a shop has particular skills, the manager promotes them. This might be suspension work, dyno tuning, machine shop services -- any kind of work that puts the shop ahead of the pack, so to speak, and allows it to bill (and thus compete) on the basis of ability, not strictly price, an important advantage. The frequency with which customers return to the service department is affected by things such as followup calls, postcards, advertising, service specials, and customer loyalty programs. Per-ticket revenue is determined by effective service write-up, including the walkaround technique, upselling, menu pricing strategy, and proactive customer communication while the jobs are underway. All are vital.

Controlling the cost of sales is just as important as going after more sales, if not as much fun. It starts with managing the tech's wages, but also involves tracking and improving their efficiency, that is, each tech's percentage of actual to billed time. Even shop layout and service procedures affect cost of sales, which the savvy service knows very well. If the service department struggles with the cost of each billable hour it sells, the manager may need to implement an incentive pay system, and also to determine whether the shop's labor rate is adequate.

The service manager doesn't have to be an accountant to know how to take advantage of basic profit principles. These two things, sales and the cost of sales, are the service manager's keys to unlocking the real potential of a profitable service department, and he must learn to recognize, control, and work with these important elements.

The ABCs of Service Department Time Control

In the service department, it's all about time. Time is the service department manager's commodity, his or her stock in trade, the thing he buys and sells, and in a very real sense, his inventory. It stands to reason that a service manager needs to have a handle on what happens to time in the department.

Though it is possible to account for one or two more, there are generally speaking three kinds of time in the service department: available, billed, and clocked. Available (A) time is the time a technician is clocked in for the day, which will, because of the timeclock, not include any breaks such as a lunch break. Billed (B) time is that time the customer pays for, the time the shop manage to bill out. Clocked (C) time is the time spent on a specific job or task. Unlike available time, which is clocked per day, clocked time is clocked per job.

The three kinds of service department time are tracked by the use of a timeclock, or more often these days, a computer program called a dealer management system (DMS) which has timeclock functions built in. The tech “clocks” in at the beginning of the workday, out for lunch or other breaks, and finally out before going home. That's available time. As the tech begins one job he or she clocks in, and out again when finished. That's clocked time. Billed time is of course the time quoted to the customer and which the customer has agreed to pay when the job is completed.

Although it might to some people seem as if billed time and clocked time were the same, they are definitely not. They are usually different and at times can be very different. How much different is called the technician's efficiency. Efficiency always means input vs. output. In this case, it's how many hours went into the job, versus how many hours are billable on the outcome side. Some folks feel efficiency measures how fast the tech is, but that is not correct. Efficiency actually measures a technician's skill level. A fast tech will indeed spend less time doing the job than the time the customer pays for, but if he is too fast, and has to do the job over again as a comeback, this affects his efficiency. He has to clock in on the comeback, but the customer doesn't have to pay for it, so the efficiency percentage is affected. The result is that using efficiency in this way, that is, accounting for comebacks, directly communicates the technician's skill level, his ability to do fast yet quality work.

Beginning techs straight out of trade school will often rate at about 70 percent efficient. This means they take 30 percent longer to do the job than the customer pays for. That is expected with a beginning tech. After 12 to 18 months, this tech will begin to approach the 100 percent area, if they are sharp and the shop environment is conducive to growth and efficiency. Veteran technicians commonly rate in the 100 to 150 percent range, depending again on outside factors. And this efficiency metric isn't used just for individual techs. It can also be used to gauge the efficiency of the entire shop. Are the techs waiting too long at the parts window? Or are there glitches in communicating with the service desk? These kinds of things can be tracked using the efficiency measurement.

Another measurement that can be taken is how productive a technician is. This is done by comparing his billed hours, again, but this time against the tech's available time, not his clocked time. Productivity measures the technician's monetary value to the department. In other words, how well he turns time into money, a fairly important question. Productivity numbers tend to be in the 80 to 90 percent range.

Finally, one more measurement can be made, and that is the technician's industry, his busy-ness. Comparing the tech's clocked time to his available time will tell you how much of the time he is clocked in for the day he is clocked in on jobs. How much he “keeps his head down.” This to me is an important measurement, perhaps the most important of all. For while efficiency tells us of his skill, and productivity his monetary value, industry gauges something more important than both of them, his work ethic. Like productivity, industry should be fairly high, 80 to 90 percent.

These ABCs of time control measure and grow a shop's techs, gauge the efficiency of the service department as a whole, and even help determine whether the shop's job rates are correct. Service managers want the very best information on how their commodity, time, is being used and managed.

More on dealer inside info

Many people view powersports dealerships as equal to McDonald's franchises. They're not. Far from it. The arrangement between a motorcycle manufacturer and its dealers is really very different. A franchiser such as McDonalds or Burger King dictates virtually everything its franchisees do. Operating hours, days closed, promotion participation, recipes, vendors, appearances of the product, and on and on. All are strictly controlled and the franchiser makes regular visits to check up its franchisers, not to mention regularly exacts an agreed-upon percentage of their gross income.

Motorcycle dealers on the other hand have worlds more leeway. It's a different thing altogether. They can reconstruct the motorcycle in a different way than original before selling it, they can sell whatever else they choose to alongside the manufacturer's product, choose their own operating days and hours, exercise complete control over their marketing strategy, appearance of their stores, all of that. And the host company does not exact any percentage, and performs only the most cursory of checkups, if any at all.

Becoming a powersports dealer is basically two things: buying the right to put the manufacturer's logo on your building, and acquiring the benefit of unique access to the host manufacturer's product, parts, and information. That's it. But it is enough, and it is significant. Powersports manufacturers do not make available these benefits to non-dealers. They also are considerably more protective of their dealers' territories, unlike fast food franchisers who frequently allow two stores on the same block!

The point is that unlike a franchise, a powersports dealership is an independent operation, and one whose principal is wholly and uniquely responsible for everything about its function. Not that manufacturers don't want to know when the dealers it has put a certain amount of trust in and have invested in are sullying its name in one way or another. They do, you can be sure. They just don't have a lot of leverage to apply (depending on the exact details of the dealer agreement, but most are similar) when the dealer isn't representing them the way they would like.

yet more on powersports mechanics

I've written a few things about powersports mechanics before. Links to a few of these articles are found below. One thing folks don't often realize is just how methodical a career mechanic can be. This is a picture of a mechanic's workbench at a motorcycle shop, taken around 1995. Note the things in this picture. The cylinder head is on a specially-made head holder, up off the bench. Spot the noteboard? How about the laptop? And the parts bins above the workbench? And don't miss the holders for punches and chisels. Yeah, a good mechanic is tidy.

The Superstar Myth
Where is the Service in the Service Dept?
Motivation
The Face of the Store
Mechanics
George
Need More Mayo!