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The Shortage of Car Mechanics Can Affect Dealership Revenue

Posted by Brandes Elitch on Fri, Aug 16, 2019 @ 08:55 AM

dry lake bedA current study by the National Automobile Dealers Association (NADA) found that there is a serious shortage of car mechanics at dealerships, somewhere around 20,000 – 25,000 people. The trade group predicts that dealers will need another 46,000 more people by 2026. If you own or manage a dealership, this will keep you up at night, because today the parts and service area (aka “fixed ops”) comprises fully 49% of the dealership’s gross profit. It’s what keeps the lights on and pays the bills!

From another perspective, the average service tech generates $1,000 per workday in gross revenue for the store. A study by the Carlisle Group found that if dealers had enough techs, they could increase store revenue by 17%. Now you see why the shortage of car mechanics is so important.

New car stores employ about 317,000 service techs, which works out to about 19 per dealer according to NADA. But the average turnover rate for most skilled techs was 27.2% in 2016. How can you run a business with that kind of turnover, particularly when it is hard to find a replacement? The answer is, perhaps you cannot. How did we get in this situation? Let’s look at some details.

Inside the Shortage of Car Mechanics

auto mechanic and computerThe NADA study says that about half of the entry-level techs that came from certified auto tech programs leave the store within two years. Why does this happen? Four factors are typically cited.

First, most dealers (probably 75%) use a flat rate pay plan, which pays a set amount per completed job (the “flat rate” time cited in the ship manual), rather than an hourly wage. This values speed over the quality of the repair. If the tech is highly talented, experienced and works fast, then he (99% are men) can do well. It is difficult, however, for an entry level tech to do this. Interestingly, only about 17% of aftermarket repair shops do this.

Second, there is really no detailed career path for a new tech or career ladder, except in very progressive shops. The new rep sees himself doing the same thing for the next 30 years, which may not inspire him.

Third is a corollary — the job requires long hours. If the customer was promised their car on Thursday and it is Wednesday night, then the mechanic is going to have to work overtime to get it ready for delivery. This can get pretty old, especially if the mechanic has a family waiting for them at the dinner table.

Fourth, a new mechanic has to buy all their tools and pay for them himself. This is a very expensive proposition, and a seasoned mechanic could easily have $40,000 worth of tools. Most new reps just do not make enough money to buy all these tools at the beginning of their career.

As if this was not enough to deal with for dealerships, something else is going on in the background: people are going to retire. The average tenure of a service rep today is 28 years, and it is projected that we will lose 60% of the techs to retirement in the next five years!

Beyond the Shortage of Car Mechanics

high tech auto techHere is another factor: modern cars are extremely complicated and can be much harder to diagnose and repair than even cars made five years ago. Car maintenance today is about working with computers and software. Service intervals and factory recommendations must be scrupulously followed.

My friend, Paul, is a mechanic at the top of the profession who works in a Big Three shop. He said that if the vehicle owner does not change all the filters and fluids on the current line of diesel pickups per the maintenance schedule, then they are looking at a repair in the range of $7,000, and he does a lot of them.

Per the 2017 NADA Dealer Workforce Study, here is a snapshot of the average mechanic.

  • 40 year old male
  • 19 years of tech experience
  • Earned $55k in 2016
  • Paid by the job, not the hour
  • Has been in the current job for 3.8 years
  • Worked 42.5 hours a week in 2016
  • Spends 70% of the time on light maintenance and repair
  • Spent $5k to $50k on buying his own tools
  • Says he would NOT recommend this occupation to a friend

One of the most important parts of all this is that there is a relationship between employee turnover and customer retention. According to a study in Fortune magazine, there is really a causal relationship between happy employees, happy customers, and increased profits in the store.

Customer Satisfaction IndexA NADA study showed that turnover is 43% for service advisors, 28% for service techs, and 25% for service managers. Fixing this problem requires a culture change in many dealerships that may or may not be possible. But if you are running a dealership, this is one of the most significant issues that you will have to face.

Another trend, this one is working in your favor, is that the cost of parts and service is increasing, and so should your gross margin. But the flip side of that coin is that some of your customers will have difficulty paying an expensive repair bill. How can you help them with this and turn an unpleasant situation into one that improves your Customer Satisfaction Index (CSI)?

How to Counter the Shortage of Car Mechanics

Well, one way to help them is to use the tried-and-true CrossCheck Multiple Check service. Here’s an example.

Your customer comes in with a slipping transmission, and the car is just out of warranty. To rebuild the rebuilding auto transtransmission will cost $4,000. The customer does not have an open to buy on their credit cards for this amount, and does not have that much in their checking account.

But if you say they can write four $1,000 checks — one to be deposited today, and the rest spread out over a fixed period (usually 30 days) on dates they choose for deposit without paying interest — then that will make the sale happen. This is the power of Multiple Check.

The customer will believe you are going the extra mile to help them, and that will be reflected in your CSI score. And, of course, the revenue will be reflected in your bottom line.

For over 35 years, CrossCheck has supported car dealers by making a sale happen that would not happen without our check guarantee program, and we look forward to supporting your store whether there is a shortage of car mechanics or not!

Download our free guide to learn how Multiple Check can help your auto dealership.

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Tags: Auto Dealerships, Auto Repair