The Return Policy Mistake Costing Dealerships Thousands

A plumber who ate the cost 0:00

Steve Shaw: Welcome back to Fixed Ops Focus. Steve Shaw and Dave Rogers here. Dave, what's on your mind tonight?

Dave Rogers: How you doing there, buddy, before I get into business?

Steve Shaw: I'm always good, man.

Dave Rogers: I just think it's rude not to ask how the hell you're doing.

Steve Shaw: It's a hundred freaking degrees here in Florida. I've got an air conditioner going in my studio. I had to come upstairs. But I'm happy. Life is good. I can't complain about anything. I'm happy to be here. How about yourself? How are you doing?

Dave Rogers: Just a grind, the normal grind, trying to get the month closed. And I had a leak from some plumbing that kept me home today, waiting while the plumber worked all day. It's funny: you think the stuff that happens in the car business only happens in the car business. The guy gets here around eight-thirty or nine o'clock this morning to replace the shower head, the controls and the spout, because behind the controls it was leaking water into the wall and down through the kitchen ceiling.

He has to cut the hole a little bigger to get in behind it. There's an access panel, but it's not exactly where it needs to be. He puts the control unit in, and it takes him about three hours to put this stupid thing in. He puts the shower head in, and something's boogered up with the spout.

So he leaves around eleven-thirty in the morning, goes to his place and comes back around two. I don't know if he did something in between, a side job or lunch or whatever. I'm downstairs working. I got a lot of computer work done, which was nice. But he comes downstairs around four-thirty and says, "The spout's leaking. It's squirting water out the back. I've got to order you another one." So that's two bad parts in one day.

Listen, he put the old spout back on, and it's fine. There was nothing wrong with the old one. He said, "I'll have it shipped to the house. When you get it, give me a call, and I'll come back and put it on." He was a gentleman about it. He wouldn't take any money until it's done. But he spent the whole friggin' day here to do this job.

Steve Shaw: Hopefully the water's not turned off.

Dave Rogers: It was off most of the day, but it's back on. So I laugh. The shit you can't make up in the car business happens to plumbers too. I guess it happens to everybody. I asked him, "Do you get paid anything extra when you put the thing in and it's bad?" He said the supplier says it's the cost of doing business. I said, "You don't get any labor for that?" He goes, "Nope." I said, "If it goes bad in a month and you have to put another one in for me?" He goes, "They'll ship me a new one for free, but I have to do it on my own." I'm like, that sucks. I didn't know that.

What's your return policy? 3:01

Steve Shaw: This is along the same lines. Last year I was out of town, and when I came home, my cleaning lady was at my house, and she'd sent me a text message: the ceiling in my studio had collapsed, because the big shower system the plumbing company had just put in was leaking.

The good news was, and I love asking this question, the plumbing company came out, identified it and said, "Yep, we screwed up, we're going to fix it." They have a contracting arm, and they fixed everything and redid my studio. All I paid for was drying it out. My buddy might own one of those companies. So I dried the whole house over the weekend and got the mold remediation and all that handled. And this company came in and fixed everything, top to bottom. No charge. And they put my new shower head in.

So I always ask this question. I love asking it at car dealers: what's the return policy at a car dealership?

Dave Rogers: For buying a car, you mean?

Steve Shaw: No, for service. This is the best question. It tells me whether you're customer-centric or not. What's your return policy? If I drive in with a check engine light on, and three days after I drive out my check engine light's back on, what's the policy? I call it the return policy.

Dave Rogers: It's funny you say that. I guess it depends on what it is, but ninety days, three thousand miles has always been my go-to number. A customer comes back with the same complaint, the same concern, within ninety days or three thousand miles, you bring it into the shop, there's no checkout charge, no questions asked. Listen, most parts are warranted for twelve or twenty-four months by the manufacturer. That's what we get.

But I know exactly what the answer is nine times out of ten: "Well, it could be one of a hundred different sensors, Mr. Shaw." But I've always been, and I shouldn't say always, but for the last ten or twelve years, people can bring back anything to any store they want. You go to Home Depot or Lowe's, you buy something, you bring it back, and you don't even have to bring the receipt. They scan it and give you your money back, or give you credit in the store. No questions asked.

I think there are people out there who just like to fight with people, and it's the one place in life where they have some authority, so they're going to exercise it. It's interesting when you start looking at it. I'm talking to a guy who's self-employed and owns his own company, and he spent the whole day here and technically left without a paycheck, because he wouldn't take my money. I thought it was interesting.

Steve Shaw: Yeah. Well, I always laugh, because I love asking that question. I'll ask it of your group next week: "What's your return policy?" And they'll all say, not just your group, I'm just making this up, "Well, it really depends, Steve. If it's the same thing, then we'll obviously cover it. But it does have a hundred different sensors." And I'm like, so what you're saying is your technicians never make an error, and you're going to charge me? That's literally what you're telling me.

That's what ninety-nine percent of service people will say: "Well, if it's something we did, we're certainly going to fix it. But you know." And I don't know any technician who has ever made a mistake in life.

Trained to say no 6:40

Dave Rogers: Well, I'll tell you what, it's funny you say that, because when I started in the business, that's how we were trained. I had a boss tell me one time, "There are five of you out front. Your job is to say no every time someone asks you a question. You're not going to say yes. And if they get past you and get to me, at least fifty percent of the people went away before they got to me. So I'm only giving away twenty-five percent of what I'd need to give away." That was his math. And the guy above him felt the same way. It was this whole chain-of-command type thing.

But as you get older, you learn from experience and customer service. The biggest mistake we always make is, "Well, you never know what caused that," and you start hemming and hawing and backpedaling, instead of just saying, "Sure, let me get your keys and go have it checked out."

Steve Shaw: Let's go fix it.

Dave Rogers: Part of the problem, and we talked about it in one of the last episodes, is that people are weak. The manager is afraid to go out and tell the technician, "Just check this car out, and we'll go from there." I used to do it: "Check the car out, we'll figure it out." Worst case scenario, I'm paying him an hour and eating it. What am I eating? Twenty-five, thirty bucks? What the hell's the difference?

Steve Shaw: Pay the tech. Who cares? It's fifty bucks.

Dave Rogers: But everybody wants to die on every hill. That's a young person's thing, too. When you're younger, you're more principle-oriented. I've said that before, especially as a guy. Every hill's worth dying on. It doesn't matter. Until you're about thirty-five years old, and then you start getting it. You realize maybe not every hill is worth dying on.

But we've ingrained that in our people for years, and I'm not sure where it came from. And then they'll tell you, "Well, I had to give that away because of CSI." Well, you had to piss them off to start with. That's the thing. If you'd greeted him and said, "Sure, no problem, let me get it in the shop and take a look at it," and then told the mechanic, "Shut the hell up and just look at it, and we'll figure it out. I'm going to take care of you. I'm going to pay you. It's not like I'm going to jerk you around." Like we talked about with Joshua: if they don't know you care, that's why they stand up against you.

A free diag is a $50 customer 8:57

Steve Shaw: Yeah. And we talked about diag way back in the day. Claude and I recently did an analysis on the diagnostic charge. What is it? It's literally a fifty-dollar way to acquire a new account. I get a new customer for fifty dollars. If I pay a guy fifty dollars an hour and pay him a full hour, it costs me fifty dollars to do a free diag. But if I go out to acquire a new customer for new car sales, what is it? Six hundred, six fifty?

Dave Rogers: Six, seven hundred bucks, yep.

Steve Shaw: So I could give away fifty bucks for marketing and advertising, for free diags, free rechecks or whatever. It's fifty bucks to me. Or I could spend thousands and thousands of dollars on marketing trying to drum up new business. And I think that sometimes gets lost, because it's, "Dave, get your policy down. Control your policy. You've got to do this, you've got to do that." We're always beating up on expenses, instead of categorizing them where they should go. If I were giving away free diags, I'd put that to marketing. That's a marketing expense, rather than sticking it in policy. And then I'd know it cost me five thousand dollars to drum up all these new clients this year, versus giving the money to somebody else to go get me new clients.

Dave Rogers: We touched on that a little bit when we were chit-chatting before, about marketing and having too many customers: "Hey, if it takes two weeks to get a car in, I must be busy enough that I don't need any extra customers." But it's always been a thing. I don't know why we've all been trained to say no.

You said something a couple of weeks ago when we were talking: getting a customer to say yes over and over doesn't necessarily guarantee a yes. But I can guarantee you, if you tell a customer no every time they ask you for something, they're going to be more reluctant to buy from you. Getting the customer to say no might not be a bad thing. But you always saying no to them, "Nope, we can't do that, nope, we don't do that," is not going to grow your business.

Steve Shaw: I agree with that. That's a true statement. The two aren't correlated. Me saying no pisses you off. You saying yes doesn't necessarily lead to another yes.

"That's going to affect my commission" 11:42

Dave Rogers: It's true. I think we lose things somewhere in the translation. Maybe it's your policy. A lot of times people aren't thinking big picture.

Steve Shaw: There you go. I was going to say that.

Dave Rogers: Listen, I've had a very nice human being of a service manager, who I know cares about the team and about the success of the business, and out of this person's mouth came, "Jesus, that's going to affect my commission." Now wait a second. First of all, do you know what your pay plan is? Number two, does it really matter? It's fifty bucks, a hundred dollars, whatever it is. If that's your first thought about why you're going to say no, that's the problem. If you're going to be selfish about it, "I'm worried about my policy, I'm worried about my unapplied labor, I'm worried about this and that," and you're not worried about the customer, then your priorities are a little off, I think.

Steve Shaw: I was going to say big picture. There has to be a holistic look at this. We've got to look at everything from that perspective, versus "my policy account," or "it's a recheck," or "is it a free diag?" I am the biggest fan of a free diagnosis there ever was, for that particular reason. And again, we confuse paying the technician with taking care of the customer. On the surface, in a big-picture, holistic view, one's got nothing to do with the other.

Dave Rogers: No. Listen, the techs know it. If you take care of them, what's right is right. If the guy didn't do anything wrong and you've got him checking a car, a good manager takes care of his technicians anyway. Sometimes you get the bear, and sometimes the bear gets you. There are going to be jobs where warranty pays three hours and it's a six-hour job. Are you going to sit there and squabble about it? Give the guy a couple of extra hours and call it a day. Factor it into your cost. I can pay him for six hours and still only bill the factory for four.

Steve Shaw: I could lower my gross, sure.

Dave Rogers: We used to do it every once in a while, and we still have a lot of stores where we actually give the techs extra money for warranty work. I did the math on it a few years back in one of the Honda stores. It was a smaller percentage of their work, but they were bitching about it. There were a bunch of crappy little recalls that paid two-tenths. They just weren't worth the aggravation.

So I said to the guys: if the guy makes thirty bucks an hour doing this warranty work and you've got to give him an extra ten bucks an hour to do it, look at your margins. You're getting a higher effective labor rate on warranty than on customer pay anyway. If your customer-pay effective labor rate is a buck fifty and warranty is two hundred dollars, that's fifty bucks. You've got a lot of room. You could pay twelve, thirteen, fifteen dollars more and still have the same gross profit percentage as customer pay. Why are you squawking about a couple of percentage points? I guess it goes back to being selfish, or just unfocused on what's really important. That's the problem.

Paying techs for the multi-point 15:26

Steve Shaw: Well, I recently had a conversation about whether to pay technicians for an MPI. If you'd asked me that when I was in a store, I'd have said, "F no." That was a condition of employment back in the day, and I was hard-nosed. Even when we used the AutoPoint software, when it was all just starting, I was like, "That's your deal, baby. You're a tech. You'll do it for free." If you ask me now, I'd say, "F yeah." I would pay my techs for the multi-point all day long, especially the video and so on. I did the math. And one client I talked to actually has guarantees, so you're paying for it anyway. You're just moving it from one pocket to another. So I'd pay for a multi-point all day long, every day. And if I pay for it, guess what? I get to dictate the terms.

Dave Rogers: Well, it's funny you say that. Years ago, in a previous life, I was at a group with union stores, and there was a contract negotiation going on. The union rep, an Italian guy from up in North Jersey, used to do this dog and pony show. He watched too many Sopranos episodes, is what the problem was.

He says, "My guys don't work for free anymore. These multi-point inspections, we want to be paid to do them." He's doing his whole dog and pony show. He wants a forty-hour guarantee and all these different things. So we let him rant and rave. His opening salvo used to be about twenty-five minutes about all the injustices in the world.

I said, "Listen, I'll tell you what, Joe. I will pay every technician two-tenths to do a multi-point inspection. Every single one, across the board, no matter what. But here's the deal, and I'm going to put this up front so everyone knows," because all the shop stewards from seven or eight stores were there. "Once you're paid in full to do the multi-point, two-tenths, if I sell the work, I'm free to give it to whoever I want. You bring the car in, you do the oil change, the tire rotation and the multi-point, and you pull the car out. Then I decide who gets the work when I sell it."

All seven of them were shaking their heads: "No fucking way. We ain't doing that deal." I said, "Okay, well, I offered it. I was willing to pay it." I was trying to be transparent. I could have been sneaky and not said it, but that's just the way I look at it: I paid you in full.

But to your point, we have techs we pay for the multi-point. It's not every store or every circumstance, but as a general rule we pay it. I think one-tenth is the going rate, at a lot of stores where managers had a hard time overcoming the objection. But the part that's lacking, I think, is managers holding them accountable for a quality video. If I'm going to pay for that video or that multi-point, it had better be done correctly. Otherwise, if I'm paying you for it and you don't do it, it's theft of services, or poor-quality workmanship. And I think a lot of guys don't want to get paid for it because they don't want to be held accountable for it. They're not stupid.

Steve Shaw: Well, I would pay for it. I know guys who pay from one-tenth up to five-tenths. And in Los Angeles, in California, and California folks can beat me up on this because I don't know the exact rule anymore, you're paying the guy one way or another. If it makes him feel good, and you get to be in charge of it, why not pay it? The math always works out. It's going to be what it's going to be. I can put it into unapplied time, or I can put it into the multi-point inspection. The math is the math. So I'm a huge fan. And like we started down the path about marketing, I'd look at that as marketing money. I'm paying it to grow my business.

Dave Rogers: That's what we do. We build it out: pay a tenth, zero dollars, and it gets absorbed in the cost. This way everyone participates, the advisors too. A one-tenth, zero-dollar line, and it is what it is. It's the cost of doing business.

And listen, I've heard the experts online, and my good friend Tully out in California with the Niello Group. He's got premium stores, high-line stores. He pays for the videos and the multi-point, whatever he does. He also doesn't discount a dime, and he's getting three, four, five hundred dollars an hour. Good for him. That's great. It's great marketing, a great way to get techs and a great way to keep techs. But when you're running a Honda store in Philly with five Honda dealers within a stone's throw, or a Toyota or Hyundai store where your margins aren't quite there, I understand the reluctance. But I think you're tripping over pennies to get to dollars, or whatever the saying is.

Pontificators 21:00

Steve Shaw: I think that's right too. I've been following a lot of baseball, though I don't bring it up as much anymore because the Cardinals have sort of fallen off the planet. What's funny to me is that I didn't really watch podcasts until we started doing this, and now I'm watching all these podcasts with all these pontificators, all these experts: "They should do this, this guy's bad, this guy's good." And I'm like, bro, you couldn't swing a bat, catch a ball or pitch a ball. You're a pontificator. You couldn't do it, and you're giving your opinion. Some of these people just like to sit around and throw out bits of wisdom about things they have no idea about.

You could make the argument about me, because I'm not sitting in your chair. But I'm about as close to it as anybody could be, with all of my clients. If I'm building a menu, or we're talking about the multi-point or whatever, I'll have that one-on-one with the techs and negotiate back and forth. I will never do anything behind their backs. So I feel like at least I'm in the business, actually doing the work, standing on that service drive. It's okay if I pontificate a little bit. But it drives me absolutely insane when somebody who couldn't do it, wouldn't do it and never did it wants to talk about how it should be done. I'm using baseball as the reference, but it certainly goes for our LinkedIn friends as well.

Dave Rogers: Well, I think a lot of that stuff is just clickbait. They're marketing. I guess they're monetizing LinkedIn, because every post is, "I was thinking about this recently," and then a fourteen-thousand-word paragraph that gets to the bottom and goes, "What do you think?" It's a bunch of junk.

But to your point, what you do and what I do are very similar sometimes, because I have to try to be a coach or mentor, and I'm not in the store dealing with these things. If I were sitting on the intercom criticizing things as they went along, I'd be like your ballpark experts: "That was a real fumble there at the service advisor counter, Megan." That's a little different.

Half your UIO services nowhere 23:56

Dave Rogers: But I want to go back a little bit to retaining a customer. The number I heard recently is that people are eighty percent more likely to buy a car from the dealership where they service it, which I think is a pretty good number.

We've gone down this rabbit hole a little with some manufacturers that report retention and some that don't, and loyalty, because God forbid the car business would ever come up with a standard for anything. What is loyalty? What is retention? It used to be a formula: five years' worth of cars and your number of ROs, divided. But people don't keep their cars for five years anymore, and with leasing, they made the calculations based on three years' worth of sales. Okay, fine.

Some of the manufacturers I was looking at are now giving you sales retention, which I never really saw before. They show you, let's say, that fifty percent of the people you sold a car to bought another car from you. And then they show you why they defected, or what they defected to: another brand, or another dealership with the same brand. They give you a defector and conquest list, I think that's what they call it. On this graph, the Toyota dealer down the street took twelve sales from you, but you gained ten sales from them. I think it's pretty interesting that they're getting this data. That one manufacturer getting it is pretty slick.

Then they had another report for service, and it showed two boxes: the cars you sold in your UIO, and the cars sold by others in your UIO. We have some UIOs with twenty-five thousand VINs in them. That's pretty friggin' big. This was a Honda store I was looking at, and I don't recall how many years back it went. I've got to go back and look at that. But it said that forty-eight percent of the cars we sold in the UIO were coming back to us for service at this one store, three percent were going to another dealer, and the rest weren't servicing at any dealer.

It wasn't always the same. Some stores were better, some were worse. But thirty, forty, fifty percent of the customers in the UIO not servicing at any dealer was eye-opening. You're like, wait a second, we lost fifty percent of our business to the aftermarket? And then you flip the switch to include the other dealers' cars, and it was just as bad, if not worse. So you get a little warm, fuzzy feeling: "Good, I'm not as bad as everyone else." But no, I suck.

When I was looking at this thing, I thought to myself, we do ourselves no favors. You and I have been talking for a long time, a year, about first service appointments and next service appointments, when we talk about training and everything else. I hear it on podcasts and on the internet now too. But when you see fifty percent of the VINs in your UIO not servicing at any dealer, we've got to figure out a way to get those people back. We're way behind.

Steve Shaw: It's 2008 all over again. When I was at the dealership in 2008, people were defecting from the Porsche store and the Ferrari store. They were leaving us and servicing their cars right across the street. That was when I started my company, around 2010, give or take. We had to go teach value. We had to teach people about value, very similar to the Mini situation: why did I buy a Mini? Why do I service my car at the dealership? That's the value side of the need-plus-value equation we promote.

Well, people are now saying, "I don't see value in the dealer," and they're defecting all over again. It is 2008 all over again. People are leaving us, and I can be a testament to that. I've serviced my truck at three stores locally, and not one of them gives a damn, and not one of them is any good at service. It's atrocious service for a supposed luxury brand. And on my regular car it's as bad or worse. We just do such a bad job.

I don't know if I said this, but I was negotiating with all three to buy a new car two weeks ago, and they were trying to give me their whole value proposition. I said, "I've been in your store. Don't sell me on the value. Here's the deal: he who wants to lose the most money today is going to earn my business, because you can't make the argument to me that you do a great job. Your service has nothing to do with this. Three people, the same exact car. Who wants to lose the most money? I'll buy from you." That's all you've got. You're down to a hundred percent price: what's the cost of the vehicle, and how much can I get? My bottom-line answer to everybody was, "Keep going. I'll let you know when you hit my number." Or, "Here's my number. When you get to it, call me." There's nothing left in the value proposition at so many of our stores, and that's why everybody's defecting. I'm leaving.

Dave Rogers: I sent emails to the GMs, because I want to see those reports monthly. I sent the sales retention overview, the reasons people weren't coming back, some of which were service and some sales, so it wasn't just one answer, and then where the people went, pump in, pump out, let's say. And one GM sent me back a note: "Why'd you include the service manager on this?"

I said, "Because I think retention is a dealership issue. It's not just sales. I'm going to send the service ones next." Why would you ask me that? Why wouldn't your service and parts director want to know how well we're retaining? Maybe he can help retain customers better. If somebody says they're looking for a new car, maybe they'll bring them up front instead of telling them to go to the other store. The departmentalization of the whole thing.

But it goes back to what we were originally talking about. If you're losing fifty percent of your customers to the aftermarket, why aren't you doing the first service appointment? Why aren't you doing the next service appointment? When a customer comes in whom you haven't seen in a while and his check engine light is on, why do you have to club him over the head with a diagnostic charge?

Now, I always put a caveat on that. If I haven't seen you in a while, Steve, I'm running a Carfax. Your car's got ninety thousand miles on it and it's never been to my store, so I'm running a Carfax. Because I don't think I'm the luckiest guy in the world, to all of a sudden have Mr. Steve, cashed up, coming in with his ninety-thousand-mile Grand Wagoneer looking to spend thousands of dollars to fix it. I figure you wound up with me because you figure I'm a sucker and I'm going to fall for something. So I'm going to hedge my bet.

Steve Shaw: You're in Philly, so you guys have an attitude anyway. I don't have a problem with that.

Dave Rogers: I just have to make sure I have all my facts. If the thing just came out of a body shop, then we might have a different discussion about what the checkout charge is going to be. But I do agree with you, in theory: let's not put up all these hurdles. I tell you, man, when you look at some of these numbers, even sales: fifty percent retention in sales. If you're one-to-one on conquest to defection, that's above average. If you're at ninety-seven percent, you're losing people. If you're at a hundred two, you're gaining people.

And it showed something else that was interesting: leasing, return to lease and return to purchase. The return-to-lease score was pretty good, seventy, eighty percent. Return to purchase was like twenty-five, thirty percent. You're like, what the frig? I don't know.

Marketing in, driving out, and the GM tip 32:53

Steve Shaw: It's crazy. Well, hey, I know we're running long. Maybe this will be our next podcast. But listen, if you're out spending money to drive people into your store while you're literally driving people away, it blows my mind. I have stores like this right now. They've got five-day, ten-day waits to get in, and they're out spending money to drive people in. How about taking some of that marketing money and paying your techs more? Go recruit some people. Have a dedicated person improve production in your store and get more capacity, so you can take care of the people you have.

We're just running them in one end and out the other. We spend money over here to drive people in, and then we pay the money to drive them right out of the store again. It's absolutely the worst thing we could do, but it's rampant.

Dave Rogers: It's insanity, man. Like you said, doing the same thing over and over again and expecting a different, more positive result. That's insanity. It really is.

Steve Shaw: It's 2008 all over again. You'd better give us a tip of the day before everybody runs off at thirty-five minutes.

Dave Rogers: GM tip of the day: retention is a dealership issue. It's not a sales issue, it's not a service issue and it's not a parts issue. If the dealership isn't working together as a team, on the same page and the same playbook, you're wasting your time. I want to keep every customer. I used to think the scorecard we should count most is "whoever has the most customers in their database wins." That's what I used to say, and it's probably still true, if it's clean data.

That's what you really have to strive for as a GM. Get your sales department, your service department, your parts department and F&I all on the same page, working together. We want that same customer to come back and buy another car from us. Make sure they buy a service contract if it's a used car. Why is that good? It's good for retention. Tire and wheel, good for retention. Paint sealant, good for retention. All that stuff keeps people tied to the dealership. It's got to become the word, and it should be what you do all the time, not just in good times or bad times. It should just be what we're all about, all the time.

Steve Shaw: Awesome. Well, I'm going to be up in Philadelphia next week, so I look forward to podcasting with you in person.

Dave Rogers: Here we go. We'll have a podcast at the office after the training classes. All right, brother. I'll talk to you.

Steve Shaw: That sounds good. I'll bring all my travel gear. Later.