Real Men of Genius: Mr. 10:06 on a Saturday Night Thank-You Call

The 10:06 p.m. Saturday night call 0:00

[Steve Shaw] Here we are again. Welcome, everybody, to Fixed Ops Focus with Steve Shaw and Dave Rogers. How you doing, Dave? What is going on?

Dave Rogers: I'm doing great, brother. How are you, man? Everything's good on this end. How's it going on your end?

Steve Shaw: Things are great. Things are actually rocking and rolling over here. Phones ringing off the hook. We've got some new classes we're introducing. Maybe this week or next week, when these episodes come out, we've got new training coming out. We're doing mobile service training. So good stuff coming up in the weeks ahead. Phones are ringing, so life is good.

Dave Rogers: That's great, man. Did you ever get your Wagoneer? I meant to ask you this.

Steve Shaw: I did. I did get my brand new Wagoneer, so we can now actually put a pin in the Wagoneer story. I believe our listeners are probably tired of hearing me talk about it. I'm tired of hearing me talk about it. But along those lines, you want to know something funny? I have the you-can't-make-this-shit-up story of the week, and it is Wagoneer related.

Dave Rogers: No way. Okay, let's go.

Steve Shaw: So, real quick: accident, July 1st. It was totaled, and the car was paid off July 31st, give or take, right? I called the dealership where I bought it and said, "Hey, would you guys mind canceling my extended service contract?" They said sure. Again, first of August, something like that. And they said, "Let us know when the car's paid off." I said, "The car's paid off." They said, "Okay, cool." So a month later, which would have been early last week, I reached out and said, "Hey, just checking in. Did you guys cancel my service contract? Will I be getting a check? What's the story?" Crickets, right? Crickets. Don't hear anything.

Saturday night, at exactly 10:06 p.m., my phone rings. It's the sales manager at the dealership. I looked over and saw the phone number, and I'm like, who's calling me at ten o'clock at night on a Saturday night, right? I said, I'm not going to pick it up. The message I got the next morning was, "Hey, this is so-and-so from the dealership. I just wanted you to know I canceled your service contract two weeks ago, so you should be getting a check anytime."

And I thought to myself, it takes a special kind of genius to call a customer on a Saturday night, after 10 p.m., to tell that person what they did two weeks ago. I almost called him at five o'clock in the morning when I got out of bed, but I let it die. That would have been another Seinfeld episode, like the heckler. But I just said, I'm done with it, right? I'm putting a pin in the Wagoneer story. The extended service contract is canceled, and hopefully there will be a check in the mail.

How a service contract refund works 3:03

[Dave Rogers] How long did you have that truck?

Steve Shaw: Just about a year. Just one year.

Dave Rogers: And how long was the service contract for?

Steve Shaw: It was an eighty-four-month, unlimited-mileage service contract.

Dave Rogers: So what's going to happen is they're going to get refunded whatever the premium was, pro-rated, of course, less one year. And then they're going to have to cut you a check for your pro-rated portion of the premium, plus their pro-rated portion of the profit they made selling it to you. That's how that works.

Steve Shaw: Right, I know that.

Dave Rogers: So nobody's ever in a rush to give you that. They don't mind giving you the premium part. They don't like cutting into their gross profit, though. That's the part they don't like. Maybe they didn't make that much money on you. Was it a friends-and-family deal? Maybe they didn't bang you out on the original one, so maybe it won't be that big of a pain point for them.

Why Steve doesn't buy from people he does business with 4:00

[Steve Shaw] Listen, I think they gave me a pretty smoking deal on it. Three grand was what that warranty cost, so it wasn't a terrible price. I think we talked about it a long time ago. I really didn't want it, but the guy's like, "Look, three Gs, bro." He was a good sales guy. The F&I guy was really good. He's like, "What'd you do with your last Jeep?" And I go, "Well, I do have it, and it has over a hundred thousand miles on it." So obviously that made me think, maybe I'll keep the Wagoneer that long too. So he goes, "Look, I'll do it for three grand."

So I got a great warranty for three grand. It was a Chrysler warranty, unlimited miles. I felt like it was a good deal. But what I learned in the buying process was that every deal you think is a good deal ain't really a good deal, right? There was a lot of stuff. Even the friends-and-family deal I may have gotten, not really. Not really. But that's what happens. I hate to buy from people I do business with, right? Because then you're a friend and family, and you're not entitled to the good service, you're not entitled to VIP. And if I, as a third-party vendor, buy, and something goes wrong, and I call you up and, for lack of a better word, gripe or complain about it, now I'm the bad guy, right? Now I'm putting a pin in our relationship. It's not that I don't have the right. It's just that it puts us in an awkward situation. So I decided this round I'm just not even going to bother anybody I really know, and just buy it.

However, a good friend, Jamie, did sell me a Wagoneer, and he did do a great job. I appreciated everything they did financially on that deal for me. I cannot complain about anything in the transaction. Everything they did was spectacular, and I appreciated everything they did for me. This was the financial deal of a lifetime, so I was pretty excited about it.

Dave Rogers: That's great. And we can't wait to live through all your service adventures, because I'm sure there'll be stories of the week, you-can't-make-this-shit-up, from getting this thing serviced. Now, did they offer the concierge service from this dealer? Do they still have that?

Steve Shaw: There was never a mention of concierge service whatsoever. And I did buy it out of town.

Dave Rogers: They're in Tennessee or something, right?

Steve Shaw: Yeah, they're in Tennessee. So I bought it from an out-of-town dealer, and I have no intention of playing that card. I'll just do my business as just a lowly customer.

Service contracts and lifetime warranties as retention tools 6:52

[Dave Rogers] So, to stay on the subject, the extended warranty is a great retention tool, right? Service contracts, even on a brand new car. What was the regular warranty on a Grand Wagoneer? Is it three years?

Steve Shaw: I think it's 3/36. They have a longer powertrain warranty. But I think you're right, it's a great retention tool.

Dave Rogers: It should be, right? You're going to go back to the dealer. You're not going to go off to the independent to get your car serviced and get repairs.

Steve Shaw: Now, this one does have the Engines for Life warranty. This dealership offers it. I think it's Powertrain for Life or Engines for Life. As we were talking about before, I believe it's Engines for Life, and I can go anywhere to have that done, because it's an actual warranty that's on it. I think that would be a great retention tool as well, certainly for a dealer that offers it. But I do think I can go to other places, because they made a big deal about it when I bought it, even though they knew I was in Florida, not Tennessee. So I do think it is available everywhere.

And think about it from a retention perspective. If they offered it and I had to go back to them, that would be a great retention tool. But it also made me ask, do I need an extended service contract? Do I really need an extended service contract, other than for all the electronic gizmos and gadgets on the new car? So I'm going to roll the dice on the extended service contract, because I have the engine warranty, and I do know people if I have to.

Dave Rogers: Right. Well, I've gone through looking at the repair-for-life guarantee programs. If you pay for a repair once, as long as it's covered, it's guaranteed. It's all mechanical repairs, and you can cover brakes, you can cover batteries if you want. I went through a program a couple of months ago with a third-party company. Zurich brings that into the reinsurance fund. I was actually on Dealer Daily live on Friday, and Sam was asking me about it. And I do think it's a great retention tool.

You bring your car in, and you pay for a one-time repair, whatever it is, control arm, alternator, starter, and we guarantee it for life, right? There's a little pack on the labor when we do the work. And I think it's a great tool. As I've said before, the independents kick our ass with warranties, right? They've got lifetime warranties on parts. They've got three-year warranties on electronic parts. So if you can't get service contract business, if you can't get 50% penetration in your store, you have to come up with some way to retain these people, because the cars are getting older and getting more miles on them. And what's the choice? Bring it back to the store, or go to an independent and get it done? That's where the challenge comes in for everybody in this business. Yours happened to be a warranty refund that started the conversation. But the fact is, if you had used it, or kept that vehicle, that's definitely a retention tool.

Back to building value 10:05

[Steve Shaw] I think that's a retention tool. And I've been doing a lot of research recently on this twenty-five-year business cycle, right? I started thinking about this going back to the nineties, when I started my research for my master's. In the late nineties, we didn't even know what we were doing as far as where training was going. It was really just focused on manufacturer-type stuff. Then fast-forward another fifteen years, and I was working on my doctorate, and that's really when I got into the training business, and we were focused on value.

I think the value side of the equation was propagated by 2008, right? The business cycle around 2008. Remember, the business just went to hell, right? So it was all about value, and customers were defecting. They were leaving the dealerships in 2008. I was working at a store back then, even a Porsche store, and people were fleeing. Then the dealership behavior changed in that era, from 2008 to, say, 2018. For ten years it was all about value, value, value. We've got to build value. And I think in that era dealers did a great job of building value and retraining and retaining their customers, right? We were training our people, we were growing, and the whole thing was about value.

When we started training, we were training value. But then, I'll say it this way, the metrics started softening, because we were teaching how to present value, but that's when the dealer became the value, because customers knew that if they came to the store, they were going to get X, Y and Z treatment. So that was all about value, and we would say if you want to sell something, you've got to create a need. That started somewhere around 2018.

Well, where are we now? 2026. About twenty years later, give or take. We could argue about a year or two here or there, but we're back to creating value again. And I hate to say it, but we've lost our way from a value perspective. We're charging a lot of money and we're not giving the customer what they want, right? So yes, to circle all the way back, we've got to find ways to build that value back into coming back to the dealership. And I think having that extended service contract, or that Engines for Life or warranty for life, is a good way to keep that customer coming back. We definitely have to find ways to do that. And I think it's got to be more than empty promises.

Short-term gain, long-term pain 12:45

[Dave Rogers] Absolutely. I was talking about it on Friday. If you really think about it, from 2020-ish to 2023, let's say two or three years, the sales department was banging people out. They had addendums on cars, five thousand, ten thousand over sticker price on a car. They were clubbing people like baby seals, right? That's just what they were doing, unfortunately. And to think those customers are going to want to come back to your dealership for anything is crazy, if you think about it, right? It's always short-term gain and then long-term pain. That's what this car business always seems to be, right? We forget about action and reaction. Everyone just forgets about this stuff.

And then they're sitting there going, "Geez, I wonder where everybody went. The customers are all gone." They're all confused. But when you look at building value, right now these customers who are three or four years in are coming back into the cycle, right? They'd normally want to be buying a car, or trading their car in, after four years. They're so upside down they're never going to come back to us. They hate our guts at this point. And when you say building value, it starts from day one, man. When you sell the car, you sell the dealership, you sell yourself, you do all this stuff. If you're not building the whole picture, it's just wham-bam-thank-you-ma'am.

It reminds me of the old eighties and nineties in the car business. It really does. Anytime that market's been hot, it's amazing how people just forget about shit. I always laugh at the sales department. They're like great white sharks with blood in the water. Their eyes roll in the back of their head and they just start chomping, right? They have no idea what they're biting. So this is going to be the challenge in the next couple of years. It's really going to be a challenge, because I think a lot of people are pissed off and they're not coming back to the stores.

Steve Shaw: Well, obviously the numbers show they're not coming back to the stores. And again, you said it. I posted the other day about how poorly I was treated buying a car. For one, I was fee'd to death. And I was doing a lot of reading about the new laws coming out, and all the things in the way I was treated are, I don't know, illegal, if you want to call it that, by the FTC. All those practices have to go away. And I was sitting here as a consumer, madder than a firecracker, at how my car could start out at 85, get an internet price of 75, and then get a wholesale price of 95. How does that work in your head? What would possess somebody to think a consumer would stand for that? It made absolutely no sense.

So that's another wedge driven between the consumer and the dealership, because of unfair business practices or whatever. I'm a relatively smart fellow, but as I started looking at it, I was glad I had Claude to do an analysis for me on fifteen different dealers and fifteen different antics of what went on. So whatever we can do, back to the topic at hand, to keep those customers coming back. And I still think, we've talked all the time about processes and staying on task and teaching our managers what to do, and I think we're going to come full cycle to that again, what we were doing back in the late nineties: blueprinting, and teaching that this is how we have to do business if we're going to survive this downturn we're full throttle into right now.

Retention through the customer's eyes 16:23

[Dave Rogers] In the last five years of the nineties, I was at the Chrysler store, and we spent a lot of time in the classes. They had all different things, but one of the biggest ones, and I still talk to the guy, was with a trainer who was doing some work for Hyundai and Genesis not too long ago. Dave Leeson is a great trainer. Everything was through the customer's eyes. Look at everything through the customer's eyes. That was the late nineties.

And I really do want to go into retention a little deeper, maybe in the next episode. But back when we were doing this in the late nineties, service retention in the United States, and you probably remember this, used to be an old calculation. They'd take five years' worth of sales data, new cars. They used to just count new cars. So let's say that's 12,000 cars. Then they'd divide it by twelve and say, "Okay, you should have a thousand cars a month coming into your store." That's how they used to do the math on it. It was something stupid like that. So if you only had 500 customer ROs, you were at 50% retention. If I remember correctly, that was kind of the NADA math on it, right?

But then, three or four years later, everyone said, "Well, what about leases? They come back in three years. What do we do about those? For most people, the trade cycle's four years." So they started playing around with it. Now you actually have the data to get the numbers and see what it is. Obviously the computers are a lot stronger and everything. But back then, in the nineties, we were told the Canadian dealers were in the sixties and seventies, at the same time we were in the thirties.

Steve Shaw: Wow.

Dave Rogers: That's what they were saying. So they were light-years ahead of us back then, because people brought their cars back to the dealers, I guess. They treated them nice. It wasn't wham-bam-thank-you-ma'am. A different environment, a different country, whatever the case may be. Now I'm hearing dealers tell me they're at 60%, 70%, that type of thing. I see some of the retention numbers here and there. But when I look at retention, I'm looking at what percentage of the people who bought their car from you buy their next car from you. To me, that's retention.

Steve Shaw: Exactly. A hundred percent.

Dave Rogers: And it looks to me like the number is around 40% when I do a scan. Except for BMW, which was in the high sixties, and that was mostly because of leasing. Now, I don't have every manufacturer in our portfolio, but when I'm looking around, 40% seems to be the number. To me, if I can retain 80% of my service customers, but only 40% are going to buy their next car from us, we're not doing a good job at all. That's a failure.

Steve Shaw: Well, a hundred percent. I remember growing up in the business, the purpose of the service department was to sell the next car. That was flat-out what it was all about. If you made any money back there, that's fine and dandy as well. But the purpose of service was to make sure the customer bought the next car. One hundred percent. And the whole thing about Pass/Fail, that's exactly what it is. I sell you a car, and you buy another one: pass. I sell you a car, and you don't buy another one: you failed. There's no question about it. And to Mickey Mouse the metric, as you say, with CSI and everything else along the way, it's all BS, right? Not one of those things matters. That's just the scoreboard of what you did. And what we've done is fail miserably, at forty percent. It's terrible.

Dave Rogers: It is terrible. And it looks like leasing is a little higher than purchases. I'm not sure how that plays out in the long run when you blend it. But one of the things that used to drive me crazy when I was the GM, like your story about canceling your warranty: my F&I guys would try to time it to the month they thought would be best to take a chargeback. No process. Goddamn warranty refund, ASAP, give it back to the customer. When one of them took a day off, we'd go through his desk and find a bunch of cancellations in there, right? They didn't want to do it. So you talk about retention, about keeping a customer. What better way to lose a customer than to screw around with the refund, right?

Steve Shaw: Oh my goodness, crazy. Some of the things we do as practices are mind-blowing, man. You certainly scratch your head at why we would do that. But I'd love to continue this conversation about retention in our next episode. So if you want to wrap us up and give us a GM tip of the day, that'd be awesome.

GM tip: take refunds away from F&I 20:59

[Dave Rogers] Well, the GM tip of the day goes back to the original part of the conversation: the refund, right? The extended warranty refund, whether it's a cancellation, a customer change of mind, they paid off the car, they moved, it was totaled, doesn't really matter. I think it's foolish to have the F&I person, whose income is derived from F&I gross, handle that transaction. That should be somebody independent, a third party, somebody neutral. Maybe a customer service person. If I did it again, I would never let that person be the cancellation department, because it just does not compute.

And I'd like to throw something out there for service retention. One of the things you and I talked about a while ago: what if I told you the biggest reason for defection has been built into the system for decades, and it's not necessarily our fault? I think that was your line, Steve. That was the line you came up with one time when you were putting together a process, when we were talking about defection and retention. So I'll give you a little credit for that one. It was a while ago. You sent me that in an email. Next episode, right?

Steve Shaw: Let's continue to talk about that in the next episode. All right, we'll see you next week.

Dave Rogers: All right, bud.