The Prepaid Problem

Fixed ops is the buzz 0:00

Dave Rogers: Hey, Steve Shaw, welcome back to Fixed Ops Focus. How you doing, buddy?

Steve Shaw: Dave, welcome. Good to see you.

Dave Rogers: How are things going there in the lovely southern Florida training world?

Steve Shaw: The training world is amazing. It's off the chart. I can't believe my phone is ringing more than I could ever imagine. Maybe it's just my head ringing. No, my phone is ringing more than ever. Fixed ops is where it's at. I guess people need to focus on their fixed.

Dave Rogers: That's great. The buzz this year, everything I see, other podcasts, the car business channels, LinkedIn, the buzz is fixed ops. So I anticipate this being a big year for training and for the business. That's great.

Steve Shaw: My calendar for the convention is filling up. It's amazing how many conversations are about fixed ops. If you'd asked me 15 years ago, when I started, if I'd be busy for three days with appointments at the convention, I'd have probably said, "I hope so." So yeah, it's great. Where did we leave off last time? We were talking prepaid maintenance, right?

Where free maintenance started 1:22

Dave Rogers: Yeah, prepaid, or I guess to clarify it, the maintenance that's included with the new car warranty. I would say that's a different thing than technically prepaid maintenance. The warranty maintenance that comes with the new car you buy.

Steve Shaw: The warranty maintenance. It sounded like you had a strong opinion about factory warranty maintenance sold with a new car. I remember being in a class with you once where I think we called it the Dave rant, if I'm not mistaken. I'd love to hear your thoughts.

Dave Rogers: We're going to save my rant for the other rant on maintenance. To give you a little background: back in the early nineties, Hyundai came out with a program called Value Care Maintenance. That was the first time I'd ever heard of it. Hyundai, at the time, had cheaper cars. Hyundai Financial was buying subprime paper. They weren't necessarily your customers of today. They figured a way to get the customers in, because they were probably having a hard time affording these cars and paying for maintenance. So they included three maintenance services with the car: the 7,500-mile service, the 15 and the 22,5. They included one set of wiper blades, and I believe an alignment. Adjustments were covered under the 12/12, normally.

So customers would come in, because the salesman would tell them maintenance is free for 18 months, I think it was. At the time, cars were using conventional oil, 10W-30, 10W-40, whatever it was, and we used to change the oil every three or four thousand miles. Everybody was programmed. The customers were programmed to bring their car in every three, four thousand miles. They'd come in and say, "I want to get my oil change." The dealership I worked at thought about giving away the first oil change free at 3,750, but they got cheap and said, "We're just going to do the factory services." So the customer would have to pay for the first oil change, $19.95, by the way. That's how much an oil change was. And the customer says, "The 7,500, which is the oil change and tire rotation, that's free, but this intermediate oil change is not? Just do the 7,500."

Then they'd come back in at 7,500, because they were trained to, and because you could do it early and there were no guidelines, they'd say, "Give me the 15. It's free. Don't I get wipers?" Yeah, you get the wipers. And at the next service, nine months into ownership, they're getting the 22,5, and you never see them again. They were done. That was my first experience with it. Later on I saw it at Mercedes, when they were just getting ready to end their free maintenance. BMW has been doing it since probably the mid-nineties, maybe the late eighties. I learned a lesson back then: part of it's the salespeople. They weren't telling customers the truth: "Everything's free. Maintenance is free." It was an epic disaster, and I'll stand by the statement that it's still an epic disaster and it's done for the wrong reasons.

Toyota's free maintenance and the 10,000-mile interval 5:12

Dave Rogers: To give you a later example, in 2002 or 2003 Toyota changed their maintenance schedule. They went to 0W-20 oil and a 5,000-mile oil change with a tire rotation. Prior to that it was 7,500 miles with conventional oil, and we always cut it in half. They did 5,000 miles for five or six years. Then they had their accelerator pedal problem, they lost a lot of customers, people were scared, and they had the brain surgeon idea to give people free maintenance for two years.

Steve Shaw: Just be careful how you talk about brain surgeons, because I've got a favorite one. We love brain surgeons over here at Steve Shaw Training.

Dave Rogers: That's true. I'm sorry about that. Well, it took somebody who really didn't know anything about customers and people, and they made it a two-year maintenance plan. But what they also snuck in was that the oil change interval was now 10,000 miles, not five. So the minute they had to start paying for it, that same car with the same 0W-20 synthetic oil miraculously got an extra 5,000 miles on the oil change. You basically get two oil changes for free under that. I think it's up to 24,000 miles.

I don't work at a Toyota store anymore. We don't have any. But people tell me loyalty is what they're shooting for now, because they're fighting to get customers back in. They don't get paid or incentivized on CSI anymore. It's loyalty: getting the customer back once a year after their warranty is up. They have such a hard time, because if you tell somebody something's free for 24 months, why are they going to bring the car in and give you any money? Just like I was talking about last time with the wheel balance.

Teach customers to spend with you 7:04

Steve Shaw: What I find funny is we talk about this a lot in training. I have quite a few Toyota clients, and a lot of training with Toyota stores. Some stores, Nissan or Ford, might give the customer free maintenance, or be one of those places where you get a free oil change or oil changes for life. Some dealers are very good at prepaid maintenance. So we're training these customers that they don't have to spend any money when they come in. I'm fighting the good fight for the dealer, teaching someone how to actually sell, as we talked about before. It is selling. We call it creating a need. We call it creating buyers. We want to get the customer comfortable spending their money.

I know your rant, which you do so eloquently, about customers not spending money, or waiting until the very end when they're out of their service. Then they're used to not spending money with us, and when we ask them to open their wallet, they leave. It doesn't even matter that we gave them great service or free service for three years. "Oh, you want me to spend money? No, no." They'll either leave or trade it in and get the free program again. So I'm with you. Like your Mazda service manager giving them the balance. That's powerful. We call it fries: "Would you like fries with that?" Adding that one additional item onto every repair order, even on a free service.

I will tell you, I think Toyota service advisors are the hardest people to change their mindset when it comes to free maintenance, and I think Hondas are like this in some respects. Toyota says customers don't need to spend any money, so the advisor's not going to ask them. Honda says you service your car when the light's on. Slightly different scenario. But these advisors think, "I'm working for the manufacturer." No, no, no. You are working for the man whose name is on the sign and the guy that signs your check. And our job is to make the customer's vehicle last as long as humanly possible and give it the best care. We talk about having that customer service agent take care of the customer, and they don't realize that having a customer buy something is good for business. It's good for the customer to understand that I do have to spend money to make my car last a long, long time.

"Everything's covered." No, it's not. 9:38

Dave Rogers: I think it's back to the same narrative you hear me rant about: you're not being truthful. The manufacturer, the F&I guy, the salesperson, they're just not being truthful. This isn't all the maintenance the car needs. It takes a percentage of the maintenance, and that's covered under this plan, which is free. It's part of your car purchase, not prepaid maintenance, where somebody usually has a choice of the severe driving schedule or a regular schedule. But it still doesn't cover everything. It doesn't cover the alignment. Some of them do, some don't cover wipers. Cars need that stuff. None of them cover tires, let's be honest, unless you have wheel and tire for damage. And if they sold a maintenance plan that covered everything, it wouldn't be affordable.

I used to laugh. When I was with Mercedes in '03, two years before they ended the free maintenance, the advisors there wouldn't sell anything. It was four years, 50,000 miles of free maintenance, whatever the case was. The book said bring the car in once a year. Well, the tire manufacturer said every six months to rotate the tires. So I said, "Why aren't you bringing people in for a tire rotation and charging them?" "Oh my God, are you crazy?" So these customers went 20,000 miles having their tires rotated once, and now they need tires. And in the ML at the time, the all-wheel-drive SUV, it needed four-wheel brakes at 20,000 miles. He didn't rotate the tires, and now he needs brakes, and that was not covered.

Those customers did the B service and got surveyed. So now I'm telling you, "Hey Steve, you need $1,800 for the tires and $3,000 for the brakes." "Why?" "They're not covered." "Well, everything's covered." "No, not everything is covered." Guess what? You got a zero on that survey. You were set up for failure from day one. BMW, I think, did a better job, but they still have flaws. Tell a customer at 25,000 or 30,000 miles in his three-year BMW lease that he needs tires, and they lose their shit. "It's a lease, I'm not paying for tires." "Your tires are bald." "Everything's covered." No, it's not. Not everything is covered.

That's where dealerships get the short end of it, and we're doing it to ourselves too. Our salespeople and sales department should be educating customers when they sell them the car, and we should be educating them when they first come in, because it's basically a setup for failure. And then you have a time like post-COVID, when people were buying out their own leases, and these cars were sludge buckets. They'd buy out their lease, the engine would blow up, and they'd ask, "Why did it blow up?" "Well, how many times did you change the oil when you had the car?" "I followed the book. I changed it twice." "Okay, well, you just bought a sludge bucket." And they'd be mad at me. No, you followed the manufacturer's maintenance plan. Don't get mad at me.

Steve's Wrangler and the balance he asked for 13:12

Steve Shaw: When I bought my first Wrangler, I had the craziest experience. I was working for a dealer and told him I wanted to buy a Wrangler, and he goes, "You're going to buy this one." I was young, new in the business, training. "Why? Is it the oldest one on the lot?" And he goes, "Yeah, it's already had at least one anniversary, so you're going to buy this Wrangler." It happened to have crank windows, manual. It was terrible. But I bought it, because I wanted a Wrangler.

I got the Jeep Wave program, so I got free maintenance. But when I went in, because I did a lot of traveling, I would always ask for the extra stuff. I would ask for the balance along with the rotation, and I'd be the guy that would get the additive in my engine or get this or that done. And the advisors were like, "Why do you do that?" And I'd go, "Well, I have a Wrangler, for one, and I drive around the United States. I'd like a nice, smooth ride, so please balance my tires." If you rotate the tires and don't balance them, you take a chance. So for $30, $40, $50, it was worth it to me not to vibrate all the way from Key West, where I was living back in the day, to Maine. I didn't want a two-day drive vibrating. It was worth it.

And I also did that as an example that there are other people besides just crazy Steve who want to maintain their cars. Even when it's a prepaid or manufacturer warranty maintenance, or the oil change from the dealer, there are so many things the customer can have. Like you said last episode, I love the idea of the window guards or the mud flaps. I'm a Jeep owner, so I love all that swag. And we just miss out on that. I think the issue keeps getting pushed forward because of the free stuff: "You don't have to buy anything. Don't spend any money." And our advisors buy into it. Then there's the CSI component. I'm trying to get good CSI for the first three years, but when it really counts, I get crappy CSI, because the customer didn't know there was going to be an expense at 30,000 or 36,000.

Make included maintenance a way to save 15:33

Dave Rogers: Like I said, it just makes us look like the bad guys, and I don't think long term it's great for retention. I want to keep the customer way past the time their warranty is over. That's the goal: buy your car from me, service it with me, buy your next car from us. And in the service department, the advisors have to be strong in their convictions and be able to explain it. But that's not the path of least resistance. The path of least resistance is to just agree with everybody and shut the hell up, because you're right, you don't want a bad survey.

But you can rephrase it, like in the Mazda example: "Hey, we're going to have your tires off. We're going to be rotating them. Normally a balance is $49.95. I can do it for $29.95. You save another $20." So this included maintenance is a way for people to save money on stuff they have to pay for, if you do it right and market it right. BMW covers brakes, but it's funny, they don't replace rotors anymore. You cut them. You cut rotors on a BMW, which is unheard of in the German world. With the German manufacturers, you don't cut rotors: "You Americans aren't qualified. You don't know how to cut a rotor." So they'd been replacing them all the time, and they realized the expense involved, because they own it now. Now you can cut them. Imagine that. That's not for your convenience, by the way, Steve. It's for their expense. People don't realize it's all about the expense for the manufacturer.

Steve Shaw: And somehow it's included in the cost. You're paying for it along the way.

Dave Rogers: You're paying for it. It's not free.

Steve Shaw: It does a disservice to everyone. I think it puts our advisors on the defensive too. I apologize to everybody, because all I do is talk about training. But if they're not trained and don't understand how to make that presentation, "Congratulations for buying the prepaid. You did a great job. You bought from us, we put this on your car, we did this for you," making the customer feel like they did a good job, and the reason you just saved 20-something dollars today is because of the purchase you made. If they don't have that in their toolbox, they're just sitting there going, "I don't know, somebody told me I had to, it's in your book." Again, it goes back to: did we give them that info? Probably not.

Selling alignments at Volkswagen 18:16

Dave Rogers: Volkswagen has it too. I think they give you two or three services at 10,000 miles now. At my one store, the advisor recommends oil changes at 5,000 miles and tire rotations at 5,000 miles. We put the stickers in the window, every 5,000 miles or six months, whatever you pick, and he's getting people taking him up on it. Volkswagen is a great product, don't get me wrong, but if you go 10,000 miles, you're three or four quarts low on oil. You burn a quart every 1,500 to 2,000 miles in a normal range. And Volkswagen doesn't cover the oil under the maintenance plan, because they consider it consumption.

Now with BMW, if your oil light comes on, you pull in the drive-through, and they'll put a quart of oil in your car, two quarts, whatever. That used to drive me crazy. I thought customers should pay for it or warranty should pay for it. I went to the manufacturer one time and asked, "Can I write up an RO and charge you for this?" They said yeah. I said, "Does the customer get a survey?" They go, "Yeah." And I'm like, I don't know if I want to take that chance for nine bucks.

The guys that aren't drinking the Kool-Aid from the factory have figured it out. My other store doesn't. They don't sell alignments, because there are all these cameras on the car now, and if the rear wheels are out of alignment, you have to adjust all the cameras and it becomes a full $100 affair. So the guys in Ardmore won't recommend an alignment, because they don't want to get caught in that pickle. The guys in Langhorne run every car over an alignment rack and sell alignments all day long. That's all you have to do. They're at like 27, 28% penetration on alignments, where the other store is at three.

Steve Shaw: Don't get me started on Volkswagen and alignments. I get into it with VW people all the time. We have these spirited conversations, because we always talk about "Would you like fries with that? Would you like to do an alignment?" Our service advisors sell more alignments than Hunter has machines in there, because they just ask. The VW people give me the hardest time: "Steve, we can't do a maintenance alignment. It's $500." And I go, time out. Then I have to call like 16 VW experts to let them know you can do a VW maintenance alignment. And quite frankly, if it does require the back wheels to be adjusted, good job, because you just saved that customer's set of tires.

Dave Rogers: Right, exactly. It's funny, as we're talking about it, I think I want to put one of those alignment checkers in the drive-through there, so they can see the front is good and the back's good and feel confident selling that $169 alignment.

Alignment machines versus just asking 21:20

Steve Shaw: You know the convention's coming up, the NADA convention. A couple of years ago I was walking around with my buddy, and he was talking about buying those alignment check machines. My stance is, F those alignment check machines, just ask. So I'm in the Hunter booth with my buddy, and he's building five stores for his company, so he was trying to buy five of those alignment check machines. I'm like, "Bro, what are you doing? It's costing a fortune." And the Hunter guy threw me out. He's like, "Get the F out of my booth." I'm like, "Just hire me one time. I'll come in and teach your people, and you won't have to spend all that money." And yeah, he tossed me out. That was pretty good.

Dave Rogers: The visuals work sometimes. When you get into stores with prepaid or factory-included maintenance, it's probably not a bad idea to have something visual to show the customer, because it's hard to sell them an alignment just because you're recommending it at 12 months. We have a Jag Land Rover store with one of those alignment checkers. You just slap it on the wheel and roll it a little bit. The Volkswagen store does too, and we have one you drive over in one of our stores. They're not terribly expensive. I wouldn't mind doing it, especially in that Volkswagen store. I'll talk to TreadSpec, or Traction, I mean, when I go to NADA and see if I can get a deal on it.

Steve Shaw: What's interesting to that point: I have a Honda store with, I think, nine lanes, and they've got nine check machines. Every car that comes into any of the lanes gets a drive-over. It's the Hunter drive-over. Nothing wrong with it, everything works, it's beautiful, it shows red and all this. It boils down to: did you ask the customer?

Dave Rogers: What percentage of their cars get alignments?

Steve Shaw: Exactly. I can personally get my stores a higher rate than what the check machine gets, if we're focused on selling alignments. Even that store, I love them to death, will go for a while selling alignments like they're going out of style, and then it kind of falls off. If somebody isn't watching, it doesn't matter how much money you spend on the drive. If somebody's not auditing the alignments or the op codes, it doesn't change the number. I kid around about the alignment check machines. I think they're valuable. The bottom line is somebody has to ask the customer. I was at a store recently that had the check machine, and everybody was super happy and excited about it, but the screen the customer was supposed to look at, by the advisors, they turned it off. "It's annoying to the customer."

Dave Rogers: Of course. It's so true. Before we had the training, we were probably at three, four, maybe 5% of customer-pay-only ROs getting an alignment. We've been consistently above 10% since we had the training. I have some stores at 27, 28, 30%, 17%. But of course there are a couple, and the one Volkswagen store, to be honest, is at 3% and has never really moved. And I've got a couple of stores floundering in the mid to low single digits. There's definitely room for it, but it's all a matter of asking.

Like I said, it's the path of least resistance. Managers have to realize the human body is probably 75 to 80% water, liquid. And one of the properties of liquid and electricity both is that they follow the path of least resistance. So you shouldn't expect differently from your employees, because they're electric and they're water. You need to make sure you put a process and a procedure in place. "Would you like fries with that burger?" McDonald's can do it for 15 bucks an hour. You ever go to Best Buy? The $20-an-hour kid behind the counter always tries to upsell you a warranty. Now they have a $99-a-year club. They never, ever miss. And they get paid 20 bucks an hour. I'm sure they get a spiff on the warranties, but it's not like they're $80,000, $90,000-a-year advisors. It's crazy.

Steve Shaw: When I was camping, I had my RV, and I would go to Camping World. They told me they did get a spiff if I bought the warranty. So because they asked me, I bought a warranty for my lawn chairs. These cool lawn chairs went through the flood we had here in Tampa, and now they're rusting. So you know what I did? I took them back. They said you could bring them back for anything. "These chairs went through the flood, and now they're rusting." They looked me up and gave me a new lawn chair. What a deal.

Dave Rogers: That's awesome. I love it.

Steve Shaw: Hey, we're running long here, so let's wrap it up with a GM tip of the day. What would you tell GMs about this?

Dave Rogers: If you want to learn a little bit about your service department, have somebody start tracking the alignments. Just as a selling point: how many alignments do you do a day, divided by the customer pay ROs, to get a percentage. Get a baseline, and then see if you can grow that business. Just pretend it's like wheel and tire in the finance office. Pretend it's like your paint sealant. Just try it and see what happens.

Steve Shaw: And Steve Shaw says your goal should be at least 25%. How's that?

Dave Rogers: I agree 100%. It should be 25%.

Steve Shaw: Awesome. Hey, we've got to run and let everybody go. I'll catch up with you next week.

Dave Rogers: See you soon.