According to NADA Data 2018, service, parts and body shop – fixed ops– represents 49.6% of a dealership’s total gross. Let that sink in for a minute. That’s just under double the gross from new vehicle sales, and nearly half of what a dealership earns. Of every dollar your dealership makes, fifty cents are a direct result of fixed ops. The percentage of profits generated by fixed ops has been trending larger every year, up over two percent just in the last two years as evidenced by NADA data.
In a presentation at NADA Show 2019, Chairman Charlie Gilchrist noted that the industry faces an annual fixed ops personnel shortage of 39,000 trained techs. As techs retire or leave the industry, there simply aren’t enough new recruits to replace them. Considering that half of average dealership revenue derives from fixed ops, this is a big human resources problem. That problem begins to look like a crisis when half of new graduates from certified auto tech programs leave within two years, as statistics show.
There’s a lot to unpack with regard to the who, what, and why of the tech shortage, much of which is beyond the scope of this article. There’s a substantial history to how the industry came to this point, and there may not be a one-size-fits-all answer to this nuanced problem. There do seem to be some common themes that reappear in both our own research and the published findings of others we’ve examined, though. We’ll look at a few of these issues and some possible solutions.
There are a number of reasons why attracting and retaining skilled, experienced service techs can be an uphill battle. Let’s start with the elephant in the room: flat-rate compensation.
Flat rate- charging the customer and paying the technician based on a preset number of billed hours a job is estimated to be completed within-
has been the default for around a century as the standard model in around three quarters of service drives. While there are arguments to be made both for and against, it’s a system that courts controversy these days. Perusing the internet, browsing articles and reviewing forum comments from every position in fixed ops, it doesn’t take more than a few minutes of research to find that this system is problematic. In our own research, the perceived obsolescence of flat rate payment is a common refrain; to quote the sole comment from one Service Director, “Get rid of flat rate and the shortage will stop.”
Ouch. There are, tradition aside, a few potential “pros” to flat rate. An experienced tech can bill more hours than they work by completing repairs in less time than is billed for. Some managers hold that this helps to motivate techs to be more efficient and also to bill more hours, increasing service drive profits. When experienced techs have something good to say about flat rate, the ability to make more money by “beating the clock” is the positive aspect they point to in its favor.
There are, of course, negatives as well, such as when what should be an hour-long repair becomes a three-hour headache complete with rusty bolts. Service drives experience slow times when there may not be enough traffic for every bay to be occupied with a full day’s billed hours. Under standard flat rate compensation, a tech only gets paid for billed hours. OEMs seem to allot fewer and fewer hours for warranty work that doesn’t trend toward being correspondingly easier, and for some techs warranty repair and recalls are a bigger portion of workload than customer-pay jobs. These situations can –regardless of how busy a tech may actually be– create a feast-or-famine situation at payday. While work ethic can affect the bottom line, a tech’s income can be helped or harmed to a large degree by factors beyond his or her control. This is not a great recipe for long-term retention. While an experienced master tech could earn a six-figure income under the right circumstances, a larger portion of the workforce seems to struggle with the unreliability of the flat rate system.
The fact that wages have remained stagnant only compounds the problem: according to at least one article on the topic, between 2003 and 2011, techs lost 7.5% of salary to inflation. This has occurred despite increased prices charged to customers. In a brief survey we put together, one tech suggested that, alongside further training, paying techs 1/3 of the going hourly shop rate would go far to keep techs in the industry. Considering that 50% of shop rate was the standard for decades, this doesn’t seem unreasonable.
Tool costs are also problematic for technicians. In our survey, 100% of techs with over five years’ experience report having spent over $20,000 on tools. Average tech pay is just over $31,000 annually at the entry level; NADA reports a little over $61K average for dealership techs. While location, level of experience and duties performed account for the wide range of salaries, the high cost of tools to the tech is universal. A recent Fixed Ops Journal article noted that techs are often saddled with several thousand dollars of debt just in toolboxes to hold their gear.
Some techs might need to be more frugal when it comes to shopping for tools, but the job requires a considerable investment. It’s not uncommon for a rookie tech to spend $4-5,000 on a minimal “starter kit” of tools just to be able to work. Providing tools could be a huge step toward recruiting and retaining techs. Imagine the trouble we’d be in if doctors were expected to buy their own MRI machines, right out of med school, with student loan debt, paid at best average wages in an unreliable pay system. This is the situation technicians are often faced with. Add in long hours, the physical toll the job takes, negative stereotypes held by customers paranoid of being ripped off, and it’s a wonder anyone would choose the job at all.
Fortunately, it’s not all doom and gloom. Even as many leave the industry, forum comments from techs lamenting being driven out of work they love are common. Many techs are defecting to similar work in the aviation and heavy machinery industries. Many seem to feel that, while the work itself is rewarding, the deck is stacked against them when it comes to making a stable living in Automotive. The problem doesn’t seem to be that techs don’t like the job.
Given NADA statistics referenced earlier, staffing the service drive with the professionals required to keep it profitable should be of crucial concern. There may not be a one-size-fits-all solution; shifting a century-old paradigm built largely around what OEMs pay for warranty work requires an industry-wide effort. On the bright side, at least half of the techs we surveyed want to remain in fixed ops, and actions at the dealership level could help attract and retain skilled staff.
Some dealerships offer a base salary, hybrid compensation combining base pay with bonuses, pay scales that feature a base pay with increasing hourly compensation based on productivity targets, or other pay plans that don’t rely 100% on flat rate hours. While some might still prefer flat rate, many techs and prospective recruits seem to prefer at least some portion of compensation to be stable, even if it may mean slightly less pay overall.
While the common argument for flat rate from management is that it encourages techs to work quickly and flag more hours, there are downsides to this line of thought. That type of pressure on technicians can create a slippery slope toward behaviors that give the industry’s reputation a black eye. Techs who feel they are allowed the time to properly diagnose and solve problems are more likely to do the job right the first time. Those forced to scramble for hours may be inclined to perform unnecessary repairs or be less than honest in order to flag the hours they need to make ends meet. This perpetuates negative stereotypes in customers’ minds about the industry and dealer service drives in particular. While one would hope that a few “bad apples” are responsible for the tarnish on mechanics’ reputation, conditions that cause this type of behavior seem all too common across the industry. Providing technicians a sense of financial security is fundamental to ensuring quality and integrity in Fixed Ops. This is fundamental to ensuring dealership profits in the long term, especially in an era when a bad review has the potential to reach thousands of customers almost instantly.
While replacing the flat rate system might be difficult, there are digital tools available to benefit both the tech’s paycheck and the dealership’s balance sheet. About half of our survey respondents indicated they perform some amount of sales function in the service drive, but almost none received any compensation for sales. Compensation- be it a commission or even a simple spiff per vehicle- paid to techs could not only help motivate more sales in the service drive, it can provide another income stream for fixed ops staff, improve morale, and lessen the sting of lost pay when an RO is declined in favor of a new vehicle purchase. Tools such as AutoAlert’s Service Lead Management can be used to make sales in the service drive and increase job satisfaction as it pads the tech’s paycheck. Converting service drive sales from a loss to a win could create some goodwill and help keep techs happy and productive.
Situations vary from one to the next, and what works the best for your service drive may not for another dealer’s. We’ve only scratched the surface of employee recruitment and retention in Fixed Ops and as always, your mileage might vary. One thing is certain: without technicians, there is no service drive. While there may not be an easy, cheap solution to the shortage of qualified techs, consider what a sustained loss of Fixed Ops crew means for revenue. Can your dealership afford to lose 49.6% of its gross?