Back-End Operations Continue to Prove Their Importance

Talk about record breaking sales numbers may be the sexier subject for the automotive retail industry, but car dealers know all too well that a more revealing indicator of a dealership’s health may be the strength of it’s back-end operations.

According to Morton Zetlin, co-owner of American Service Center, an Arlington, VA Mercedes dealer, “The car business is a continuum. Every department depends on each other to be successful.”

Kent Hagan, president of Toyota of North Hollywood and Midway Ford in CA, notes his Toyota store, which is very dependent on retail sales would be hurt significantly by a recall to any of the brand’s volume selling vehicles. On the other hand, he says his Ford store has been able to handle the Firestone recalls very well because it is more dependent on the back-end operations.

Dealers on the Ward’s 500 list are showing they realize the importance of the service, body shop and parts departments. In spite of record breaking sales numbers in 2000, dealers refused to get fat and happy, and instead worked hard to make sure the back-end departments kept pace.

Total revenue for the average Ward’s 500 dealership increased about 8% from 1999 to 2000. All that growth wasn’t in retail sales either. In 1999, the back-end shops accounted for about 12% of the total revenue – they generated the same percentage in 2000. So the back-end departments have been able to maintain their growth. Automotive analyst Lincoln Merrihew says “The dealers have been able to spread the growth throughout each of the departments.”

There are a lot of opportunities for dealers looking to expand their back-end operations, especially the service departments, according to James A. Mateyka, vice president of A.T. Kearney’s automotive division. “Interestingly, as cars are built to last longer and the systems become more computerized, consumers will tend to trust the dealer over the independent shops to handle any repairs or service,” Mr. Mateyka explains.

The back shop leaders on the Ward’s Dealer 500 list are almost the same as last year’s leaders. Smythe European retains its top service department ranking for the third consecutive year, having increased its service department revenue $4.6 million from last year. “The success goes to our people,” Mr. Seadler notes. “We’ve learned that the biggest return of investment is on our human capital.”

And for the fourth consecutive year, Lustine Chevrolet and Brown & Brown Chevrolet hold the two top spots respectively in the parts department category. Lustine increased its parts revenue $11 million to $87.5 million while Brown & Brown reported $75.5 million – up $8 million from last year.

The battle for number one in the body shop category continues to be fought between three Dallas area dealerships – the two Huffines stores and the Crest Autogroup. This year, Huffines Chevrolet-Subaru takes the number one position from Crest Autogroup after increasing its body shop revenue almost $3 million from 1999. The Ray Huffines store fell to number three but still increased its body shop revenue $1.5 million.

One might reasonably assume with the top three body shop dealerships being in the Dallas, TX area, that Texans are crazy drivers. J.L Huffines, owner of both Huffines stores denies that’s the case. “The area has grown tremendously the last 15 or 20 years. We’ve been able to take advantage of that growth.”

Huffines Chevrolet-Subaru recently added a 44,000 sq. ft. body shop facility. “Our size gives us more ability to produce,” Mr. Huffines explains.

The dealership has become a one-stop body shop for customers. Having the new addition allows the body shop to install glass for all makes and models – a task the dealership had to farm out before.

“Insurance companies don’t like to send customers to three different places for estimates. We work with about 20 insurance companies and employ our own estimators,” says Mr. Huffines.

Having a team concept has helped both stores finish in the top three the last several years, according to Mr. Huffines, although, he admits there probably is a little ‘friendly competition” between the managers. Perhaps the best synergy is in the economics. “We have been able to combine the purchasing power of both stores and that has helped us a lot,” says Mr. Huffines.