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Facility Potential – How Much is Your Service Department Capable of?

  • 11/21/2017
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By Marilou C. Vroman, CPA, CFE

Dealers tend to look at high level indicators of store performance. The questions often heard at month end are: “How many cars did we deliver?” or “Where is fixed gross going to end up?” At times, more specific questions should also be asked such as: “Is our service department operating at its full potential?”

While there are many variables that work together to generate service profits such as technician efficiency, productivity and parts availability, a closer look at facility utilization may reveal great opportunities.

The dealership has a maximum realizable service capacity which should be compared to actual labor sales monthly. This maximum capacity is referred to as “facility potential”. Facility potential is calculated via the following formula: Number of bays multiplied by the number of days in the period multiplied by 24 hours multiplied by the dealership’s effective labor rate.

This calculation assumes that the service department is open for 24 hours, with a working technician at every bay. While this calculation may seem unrealistic at first glance, the facility can be generating revenue 24 hours per day, seven days per week, by scheduling technicians in shifts.  Facility utilization percentage is calculated by dividing total labor sales by the facility potential for the same period. Some dealers may be surprised to find that the service department is operating at less than 50% of its maximum potential!

When millions are spent to build a state of the art service facility with countless bays, there is a great opportunity to find more return on your facility investment with this simple calculation.

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