Flat rate still works as an incentive, but technicians need a safety net, and on this episode of Fixed Ops Focus, Steve Shaw of Shaw Dealer Training Group and Dave Rogers argue that the best technician pay plans combine both. Steve describes a St. Louis Jeep Eagle store that guaranteed each technician what he flagged over his last 12 weeks, Dave describes a 13-week rolling average guarantee that kept shops from laying people off when work slowed, and both push back on the idea that dealers alone are to blame when manufacturer warranty rules keep technicians from making their hours. For any dealer weighing fixed operations training, the point is to decide your pay strategy first, pay your core technicians well enough that they never leave, and set daily production objectives for every technician.
The flat rate debate 0:00
Steve Shaw: Mr. Rogers, what's happening tonight?
Dave Rogers: Hey, how you doing, Steve Shaw? Everything's great here. Still cold in Pennsylvania, but it's still great.
Steve Shaw: Awesome. Well, we put our socks on here in Florida. It's a little chilly, back in the sixties. There's a Florida thing where you put socks on with your flip-flops. If you're an old white guy and a total nerd dork, you do that, and I fit that category now. So I went to dinner at the bar right down the street in flip-flops and socks. It's a Florida thing. Let's just call it that.
Dave Rogers: I think in Philadelphia they wear black socks with their sandals on the beach. Shoobies or something, they call them. Maybe they all moved to Florida.
Steve Shaw: I just thought that's what grandpa would do. Long Bermuda shorts. Exactly. What's going on in the dealership world right now?
Dave Rogers: Probably the same old, same old. The one thing I see out there, and I've been on LinkedIn a lot, reading a lot of these so-called experts out there, is this big debate about flat rate technicians and how to pay technicians. I was talking to a couple of guys about it, and I was curious: what is your opinion on flat rate and how to pay these guys, over your years of experience?
The 12-week guarantee 1:34
Steve Shaw: I think the best pay plan I ever saw goes back to St. Louis, where I grew up. I also understand the reason why people would want to have a guarantee. In today's day and age, it gets more and more difficult to flat rate, certainly under warranty and the warranty times. I remember going through this when I was with Ford in Southern California. But I always go back to my St. Louis days, because we were primarily unionized shops, and the guys would get a guarantee of 40 hours. When I was with Saturn, we had our own deviation of the UAW contract.
Before that, when I was a technician, I worked for an AMC Jeep Renault dealer, and we became Jeep Eagle. That's when I was a technician, back in the late eighties, '87, '88, '89. For us kids coming up, everybody came out of St. Louis Community College, we went to work, and our goal was to get to flat rate. They gave us hourly, at a lower rate, and our goal was to get to flat rate.
But the cool thing they did, which I absolutely loved at this Jeep Eagle dealer, was that they paid you a guarantee based on basically your last quarter, your last 12 weeks. If you flagged 40 hours a week for the last 12 weeks, you got a guarantee of 40 hours. If you flagged 50 hours for the last 12 weeks, you got a guarantee of 50 hours. I thought that was a great incentive for flat rate technicians to flag their hours, do a great job, hustle and make money, but if you had a bad week, you were taken care of.
We can talk about lube guys too if you want, but that's my thought on flat rate. I believe in the flat rate system, but I also believe in people. I'm not running a store, but if I was, I would look in that direction of making sure my people were taken care of. Maslow's hierarchy of needs: if my needs aren't being met, I'm going to leave and find somewhere that pays the bills. So it's important that we give technicians the security that they're going to be able to pay their bills, but we also want to incentivize them so they can make a nice check, a nice living. What are your thoughts?
Rolling guarantees and layoffs 4:16
Dave Rogers: There's something with the different brands too. You mentioned Ford. We have some stores where we have guarantees, and we have a couple of stores that are union. I had union shops in Jersey. And probably the best guarantee I've seen was very similar to what you were saying: a 13-week rolling average. You factored in sick and vacation and everything else. And it didn't go below 34 hours, and it didn't go above 40.
If the whole shop was slow and people's hours dropped a little bit, maybe everyone's guarantee dropped a couple of hours, and you didn't have to lay anybody off. You didn't have that pressure. That's always been one of the things with the union shops and some of these hardcore rules. When it gets slow, people get laid off. There are hierarchy rules about that, and job security goes right out the window unless you're the most senior guy or the shop steward. Nobody else has security.
Warranty rules squeeze technicians 5:36
Dave Rogers: That's kind of what sparked the conversation too: Farley, the guy running Ford, blaming dealerships for technicians and flat rate hours. I always go back to the fact that the domestics have the most horrible warranty rules there are. Seventy percent rules, taking the tranny apart, getting an estimate, oil consumption tests, all the stuff they do. Not to mention how much of the gravy the manufacturers have taken away from us.
Twenty years ago, a Honda tech was making $20 an hour, and he turned 100 hours a week. Guys made 100,000 a year, and they were really not busting their ass sweating. Timing belts, 30K services. They were doing 15, 16, 20 hours a day, racking up their time. Those same guys now can't turn 100 hours, because Honda took away the timing belts for the most part. They've extended maintenance. Antifreeze is 100,000 miles, spark plugs are 120,000 miles. So the work mix has changed. In the old days, 90% of the work in a Honda shop was cash and 10% was warranty. That cash work now isn't as easy. It's definitely not the quick maintenance stuff.
I like flat rate. I like the incentive. There are guys out there that want to make the hours, like we talked about with the production incentives. Two, three, four thousand hours. It's out there for them to take. But I do agree with you. There probably needs to be a better way, a little more of a safety net, especially for certain brands. Some of these manufacturers, I don't care what they think, they suck. They're not doing anybody any favors with some of their warranty policies and procedures.
Steve Shaw: A hundred percent. Thinking back to the good old days working in Southern California in those Ford stores, you've got to give those guys credit. I don't know what person in their right mind would want to be a diesel technician at a domestic store, or even an import store, anymore. These guys are busting their knuckles, busting their butts under the hood, and as a manufacturer we're trying to find ways not to pay them. So at the dealership level, we've got to find ways to pay them.
Labor time studies and a pay strategy 8:07
Steve Shaw: Having a conversation that the dealership is at fault, I would say we certainly have our faults at the dealership level, and we could do things a lot better. But they'll tell you they do their labor time studies with manual wrenches, back in the day. There's no way that happened. If they did, they did it on a brand new car sitting in a shop where they knew exactly what to do and everything was laid out nicely. So I think their labor time studies are certainly doctored. I would say they're hooey. They're definitely not real world in a dealership, where you have to come in and perform the diagnosis.
So there has to be an overall strategy. A dealer has to look at their overall labor rate strategy: how do I charge my customers, and how do I pay my technicians? First off, what's the best way to pay my people so they have the opportunity to make a living and make that 100,000? Back in the day, a Ford tech wasn't making a hundred grand unless he was really hustling. There was probably some shady stuff going on if he was getting a little warranty booster.
I would look at my technicians and my business plan, what brand I have, and say, how do I want to pay these people so I can attract the best people on the planet? If that requires me to pay a little bit more, I'm okay with that, because I can get it back through my labor rates and my pricing strategy. So I'd decide where I want to be in the grand scheme of things. Do I want to be the highest-paid, highest-priced dealership in town, paying my people the best? Do I want to be middle of the road? Or do I want to be the lowest paid and not really care? Everybody has a strategy, so decide where you want to fall and look at it from there. But the guys have got to be taken care of. There's no question about it, especially today. If we don't take care of these guys, they will go somewhere else.
Dave Rogers: There are too many people trying to run this business based on a margin and a percentage. If your gross profit margin is 78, 80%, I don't care what anybody says, you're probably not paying your techs enough. It's a little bit high. I don't know what the right number is, because it varies, but the market will bear what the market will bear, whether it's the retail price or what you're paying your technicians.
You mentioned Ford. Some of the best technicians I've ever met in my life were domestic technicians. They could diagnose cars. They understood electricity. They just understood cars, and they could do their diagnostics, even when emissions came out and more and more electronics. These guys were dialed in. And yet the manufacturer just tries to gig you. They don't want to pay straight time. They don't want to pay diagnostic time. They don't want to pay a teardown. They don't want to pay road test time. You have to laugh at some of this stuff.
Technicians who know how to flat rate 11:31
Dave Rogers: One of the other things that's lost in the business, and I'm sure it's still there in some places, is that a lot of techs just don't know how to flat rate a car anymore. They take a job, check it out, give it back to the advisor and sit around waiting for an approval. In the Chrysler stores, the best guys I worked with would have five or six jobs they were juggling all the time. One guy taught me. He said, "I don't work on the next car. I have a car on my left that's ready to go. The parts are here. Everything's ready to go. I don't work on that car until I have another one behind it in the same shape. If I don't have the parts, the approval, everything ready for the next car, I keep bringing more cars in, diagnosing them, checking them out, seeing if I can get an approval, until I have another car I can do."
I don't see that anymore. I don't see guys that really know how to flat rate, and there probably aren't a lot of guys that teach it either. It's not intuitive, which is probably part of the problem.
Production objectives come first 12:27
Steve Shaw: They need a shop foreman to teach these guys how to do it. But it goes back to our first episode, when we talked about performance objectives. There isn't that objective. No one sits down with the technician like we used to and says, "Dave, what's a good day for you? What's your expectation? What are you capable of?" Look at your last 13 weeks, do the whole thing: "Is 15 hours a good day for you? Is that your goal? Is that your objective? Great, let's go make that happen." And then based on their performance, we move that number up or down.
You could make the argument that the dealer's not doing that. If I was Jim Farley making that argument, I'd say, "You're not coaching your people every single day." A hundred percent, that's not happening. I believe everything falls back to those production objectives. No matter how you slice it, somebody's got to be talking to these guys every single day: "You're an eight, you're a 10, you're a 12." A 15-hour guy in my world is the same as an eight-hour guy. They have the same rights and responsibilities to make their time. Overall, as an industry, we could do a much better job of administering production objectives, policing them and making sure people are successful.
Dave Rogers: It's a good point. I can never say the dealers aren't at fault, because I know we are. We definitely shoulder some of the blame. But I love the folks out there who, if you say something enough times, people start believing it. There's a lot people don't understand, whether retail customers ever listen to this or people on the street who don't work in service departments, about the hoops you jump through.
The manufacturer makes you bring the car back three times to do an oil consumption test, and the technician's not getting paid for it. The exchanges: you have to pull the radio out, get the serial number off, put the radio back in, order an exchange, bring the car back, do the same thing, and you get paid three-tenths. All these things inconvenience customers too. They think we're making up these stupid rules, yet our people are struggling to make their hours because they have to follow these dumbass rules.
Pay your core technicians well 15:04
Steve Shaw: So we have to take that into consideration. We're probably going to run out of time to get into lube techs and express. If we're just talking about flat rate guys, our senior team, I love advanced production, I love lateral support groups and having my team structured, but there's not a lot of that in the world anymore. So I've got to look at my senior guys, my master guys, and decide I want to grow them and foster them. If a guy walks in off the street from a thousand miles away and says, "I'm moving here for family reasons," I'm going to hire him, but I'm not going to hire somebody else's master tech. I'm going to grow my own. That's my strategy.
Then I'm going to give them the best life I can. Make them work five days, look at the whole thing and put a package together for a guy. I would pay that master or senior guy big bucks, and I'm okay with paying him big dollars. I've got to have my core, the offensive line as you said the other day, people who can fix a car, because that certainly is lacking. I want to pay them handsomely, pay them the money it takes so they can make a living and never, ever leave me.
Whether it's a combination of eight hours, 10 hours or 13 hours, we should have those discussions with our teams and put those things together. Whether I pay the guy flat rate or hourly is only part of the discussion. Am I giving them a guarantee? What are their hours? What's their schedule? Is it flexible? The whole compensation package has to be taken into consideration. What do you think?
Dave Rogers: I think there's some kind of happy medium somewhere in here. I have some techs on salary. They're master techs or diagnostic techs or whatever you want to call them. Every brand has a different name. In a BMW store, we have foremen. They do work on cars, but they're really there helping the other guys out. They're pretty much straight salary, and they don't produce a lot of hours. So there are these hybrid models out there, and you could do that with junior techs and express techs too, set them with a salary or hourly and give them incentives based on quick lube items, express upsells. It's going to be more and more of a challenge, because it's not getting easier to diagnose cars, there's less and less maintenance on the cars, and they want to take away all the extras.
Retail warranty labor laws and hybrid pay 17:58
Dave Rogers: The one bright spot I see in the industry is that I think nine or 10 states have now passed laws where the manufacturer has to pay the retail flat rate hours for a job, not just the retail sale dollars, the parts markup and the retail labor rate. That's going to lead to a battle, because where do you get your time from? Do you take the manufacturer's time times two? Well, the manufacturer will lower the time, just like they do on recalls. The manufacturers are going to fight. They've been fighting this pretty good.
Can you imagine a day when putting an alternator in a car under factory warranty is an hour in New Jersey and eight-tenths in Pennsylvania because one state passed the law and the other didn't? Actually, Jersey did pass the law starting in April. They can do retail flat rate hours. The fear is always that they'll lower the flat rate time, but I don't think they can get away with doing that state by state.
Steve Shaw: Well, who's actually looked at a Chilton manual or a labor time guide, especially somebody new?
Dave Rogers: We use ALLDATA. Most of the time guides are built into the DMS, or it's factory time times a multiplier. But since Jersey's changing the law as of April, you can apply for retail flat rate hours with the state of New Jersey. Our dealer there is working on using ALLDATA for all the cash work and making sure we build things out the right way. I'm interested to see what happens, because it could be a big bump for the technicians in that store. It's a Mercedes store. It'll be the first time I'm exposed to it. I know New York did it a couple of years ago, and there are a few other states. I think that's one way to help. But I think we're going to have to come up with some hybrid pay plans too.
Steve Shaw: California did something too. You've got to pay people hourly while they're standing around not working on cars. Leave it to California. "I'm flat rate, but when I'm not working, I clock in and get paid hourly for those hours." That makes sense from a technician's perspective and a pay perspective. But you really have to look at everything. I always have this mindset: what can I do differently, how can I make things work and how can I rally everybody? That goes back to the discussions we've had privately about management and leadership and how I run my store. There are guys doing some cool shit, and they're the model out there. I'm the trainer, the outside guy, and I don't really do a lot of consulting, so I don't impose my wishes on how you should run your store. But when you find somebody with the attitude that they want to learn and try different things, and they have a good relationship with their team so they can get it done, that's super cool to me. I'm always looking for that manager or two who wants to try something different and be a leader in the industry.
Dave Rogers: It's a good point. As this year goes on, I'm going to start tweaking some of this stuff, because we definitely need to change it, especially in some brands. I'm not going to knock the brand, but you've got one brand now that decided they're going to do us a favor: you don't have to clock in and out on a job anymore. But what you have to do is digital documentation. You have to take a picture of the odometer, a picture of the VIN plate, a picture of the old part and a picture of the new part, and upload it, and hope the Wi-Fi is there. It's a lot easier to punch on and off the job, to be honest with you.
And then they charge you back, you get audited, whatever the case may be. It's just another way for them not to pay you. They tried to sell it as saving the technicians from punching on jobs, but that's not what it is. They can't even bang out a PDI in this franchise anymore. You have to take an iPad with you on a road test and wait till the tires get up to pressure and the wheel speed sensors set. You used to be able to do a PDI in a half hour. Now it takes a guy an hour and a half. They're not doing anything to help the techs out, yet they're the same guys who tell you we suck. In that brand, it's going to take some time, because there are a lot of recalls going on, a lot of engine failures, and the maintenance isn't paying the bills in that store. It's hard to keep technicians with certain brands. It really is.
Steve Shaw: Absolutely. Well, we'd better leave it on that note. Let's pick up again next week and carry it on to express and the rest of the shop. For now, we'll catch up a little later. I look forward to continuing this discussion. Later.
Dave Rogers: All right, brother, I'll talk to you soon.
Build a shop where good technicians stay
Steve Shaw has spent over 40 years in dealership fixed operations, and the Shaw approach to fixed operations training has been proven in over 1,000 rooftops across North America, from technician production objectives to the service drive, where customers buy failed items 76% of the time.