Better with Time? What Dealers Should Know about Vehicle Age and Service Profits
Cars used to max out at about 100,000 miles, when the need for more frequent work made owners question their worth. After a while of paying costly repair bills, you just bought a new car.
Then new technology in the 2000s advanced the average vehicle into a mechanical-computer hybrid. This new tech made old vehicles last longer, and made new vehicles more expensive. People started holding onto their old vehicles because it was now cheaper than buying new, and because new tech meant it took longer to achieve clunker status.
Now, new studies from 2020 show the average American’s vehicle is almost 12 years old. The number of even older vehicles is shocking: 25% of vehicles are over 16 years old. If the average motorist drives over 13,000 miles a year, 16 years of ownership equals 208,000 total miles, easily doubling what was expected out of a car in the 90s.
So what does this really mean for dealerships?
When people own their vehicles longer, dealerships see fewer sales opportunities, which means creating service opportunities is even more important for profits.
Longer Ownership = Retention Value
The service drive is meant to drive loyalty for your brand and dealership to contribute to profitability and customer satisfaction. When a sales customer comes back to service once, bringing them back every time gets easier, but only if you meet their expectations and stay relevant.
Measuring the Customer Lifetime Value can help understand how service benefits from long-term customers.
Customer Lifetime Value considers:
- How much a customer spends each year
- Gross profits associated with that spend
- How many years they do business with you
- Any referrals they bring to you
- And many other factors
As a vehicle ages, the yearly cost to repair and maintain it increases, meaning you earn more from customer-pay ROs with a higher profit margin than you’re making from most vehicle sales. As newer-model vehicles age, the computer systems that control them also pose an opportunity for wider profit margins.
Retaining a customer is cheaper than trying to bring in new ones—about ten times cheaper, in fact! Because they’ve been to your dealership before, previous customers already know what to expect from continued business with you. Marketing according to lifetime value helps target and bring back those customers that you make the most from.
While conquest marketing has become more effective with improved data mining, retention marketing still has better ROI. Your DMS collects information and history from every customer who buys or services a vehicle from your dealership. You can use that information to target them with email, direct mail, digital ads, newsletters, and other channels with the best offer to bring them back in for service.
Older Vehicles = Higher Expenses
A best practice in the sales-to-service handoff is to schedule the first oil change after the sale is final, and to tell them about the loyalty program your dealership offers (which usually means more oil changes, right?). The entire point of selling customers on the oil change is to get them to come back for service so you can upsell other work.
This practice helps make service profitable, but only when it works. Let’s be frank: most customers aren’t going out of their way to visit their original dealership for an oil change. They have been convinced by independent shops that dealerships are too slow, too expensive, and too inconvenient for the basic services.
But aging vehicles bring the profitability of bigger repairs, and there are many ways to advertise for that business. Most customers may not make the trip for an oil change, but many will for the assurance of the right parts and specific vehicle expertise.
We call this Profit-Per-Customer Throughput, and it’s the idea that you get the most profit out of every customer, every time, by generating and keeping their business. By tracking models, purchase and service anniversaries, manufacturer notices, and more, you can find profitable work by:
- Targeting customers at their 30/60/90 maintenance milestones for the services you know their vehicles need
- Advertising your OEM’s roadside assistance program for emergency repairs
- Informing customers of warranty coverage and recalls for profitable warranty ROs
Service History = Quality Trades = Universal Profitability
A vehicle’s value depreciates the longer it’s on the road, but a known sales and service history can prop it up. When you have long-term relationships with your customers in service, you have a detailed record of service visits to help determine if their vehicle is worth pursuing on trade.
The front of the dealership may determine the right time to have a trade-in conversation with your customer—whether to rotate inventory when they’re in market for a new vehicle or when you’re looking for quality used inventory to resell—but your entire dealership can benefit from the trade.
Often there’s tension when a salesperson tries to sell to a service customer. But a loyal service customer will continue to come back. While their new vehicle may generate less profitable work in the short term, the trade-in still brings in service profit from internal ROs during reconditioning.
Pitching a trade at the right time with the right proposal can generate new business throughout the dealership and keep loyal customers coming back for service into the future.
As the average age of vehicles increases, you need to consider how service can capture more profitable business with well-executed marketing strategies. Service customers are looking online for service, especially for emergency repairs when these older vehicles start wearing down. Transparency, convenience, speed, and cost will motivate service customers to consider your dealership every time. It all hinges on relevant messages at the right times.