BUSI 370 Week 6 Written Report 4: Service Department Example

The Service Department: Technicians, Advisers and the Absorption Rate

Roles in the Department

Brunson and Barnes (2020) describe the service manager as responsible for the department's profit, staffing and customer satisfaction. Service advisers greet customers, write up the repair order describing the concern, recommend maintenance and keep customers informed. A dispatcher, or the shop foreman, assigns each job to a technician with the right skills, and technicians diagnose and repair the vehicle. Porters and car wash staff handle vehicle movement and cleaning. The adviser's role is the hinge of the department: advisers who explain recommended work clearly and honestly sell more of it, and customers who trust their adviser tend to come back to the same person for years.

Kinds of Work

The department bills three kinds of work. Customer-pay repairs are paid by the vehicle owner at the dealership's labor rate. Warranty repairs are paid by the manufacturer under the factory warranty, at rates set by the manufacturer and state law. Internal work, such as reconditioning used vehicles and preparing new ones, is billed to the dealership's other departments. Warranty work keeps technicians busy and brings customers into the store, but it is often paid at lower effective rates than customer-pay repairs, so managers watch the mix closely.

How the Department Makes Money

Most technicians are paid flat rate: each job carries a set number of labor hours, and the technician is paid for those hours regardless of how long the job actually takes. A technician who completes 10 flat-rate hours of work in an 8-hour day is 125 percent efficient, which raises both the technician's pay and the department's productivity. Managers also watch the effective labor rate, the average amount actually collected per labor hour after discounts and warranty rates.

Service and parts, together called fixed operations, provide a large share of a dealership's gross profit (National Automobile Dealers Association, 2024). Managers measure their contribution with the absorption rate, the share of the dealership's fixed expenses covered by fixed-operations gross profit. A store with high absorption can survive slow vehicle sales because its overhead is already paid. Many dealer principals treat raising absorption as a long-term goal, adding service bays, extended hours or express lanes for quick maintenance to increase the work the department can handle.

Service and Customer Retention

The service department also decides whether customers return. Bolton et al. (2000) studied customers of a financial services firm and found that customers' evaluations of their service experiences, including problems and how they were handled, affected whether they stayed and how much business they gave the firm. Although that study came from a different industry, the pattern fits dealerships closely. In a dealership, every repair order is also a vote on whether the customer will buy the next car there.

Conclusion

The service department earns steady profit, covers much of the store's overhead and, through each visit, keeps customers connected to the dealership between vehicle purchases. Managers who measure it only by gross profit miss half its value; the retention it creates shows up later in the sales and used vehicle departments.

References

Bolton, R. N., Kannan, P. K., & Bramlett, M. D. (2000). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the Academy of Marketing Science, 28(1), 95-108. https://doi.org/10.1177/0092070300281009

Brunson, K., & Barnes, S. (2020). Automotive dealership management fundamentals. Liberty University. https://digitalcommons.liberty.edu/busi_fac_pubs/52

National Automobile Dealers Association. (2024). NADA Data 2024: Annual financial profile of America's franchised new-car dealerships. https://www.nada.org/nadadata