Ailing auto dealers spiff up service departments

updated 6:36 p.m. ET June 19, 2008

WARREN, Mich. - A box that sends puffs of new car-scented air into his Chevrolet dealership's service lane is just one of the tricks Tim Colussy is using these days to entice buyers to come to his Pittsburgh-area dealership for servicing.

Colussy Chevrolet in Bridgeville, Pa., also has repainted and sealed the floors, brightened the lights and added new signs and displays in its service area. In the customer waiting area, there's a new flat-screen TV, WiFi access, workstations and a coffee bar.

Colussy said the dealership's efforts have paid off with a 10 percent increase in service business so far this year.

"We are selling a lot more tires than we ever have before and general maintenance items — things that a lot of time customers were drifting away from in the dealer departments," he said. "We're making a much stronger effort to educate our customer that we offer these services and are doing them on a very competitive basis."

It's hard to overestimate the importance of parts and service to dealers' profits. Dealerships typically get half their profits from service, with the rest coming from new and used car sales, according to Paul Taylor, chief economist with the National Automobile Dealers Association.

But with new car sales plummeting — the average dealer lost money on new cars in 2006 and 2007, and sales could hit their lowest level in more than a decade this year — dealers are racing to renovate body shops, add dedicated lanes for quick oil changes and compete more aggressively with independent repair shops and big chains. In a 2007 NADA survey, 29 percent of dealers said they recently had upgraded their service departments.

Dealers have been doubly squeezed because improvements in quality have significantly cut down on the number of warranty repairs they perform and have lengthened the time between service appointments. GM, for example, uses a sophisticated monitoring system to tell customers when they need to change their oil depending on their driving habits, so drivers no longer automatically come in for a change every 3,000 miles.

"We don't have the warranty anymore as the trigger to bring someone in," Peter Lord, executive director of service operations at General Motors Corp., said during a recent event at a GM service center in the Detroit suburb of Warren. "Warranty repair is now the exception. It's the routine maintenance we have to be prepared for."

Wes Lutz, owner of Extreme Dodge Hyundai in Jackson, said five to 10 years ago, 80 percent of his service business was in warranty repairs and 20 percent was in customer-paid repair work. Now, that has completely reversed, he said.

"We really don't have any warranty issues anymore," he said. "We had to learn to adjust how we take care of customers."

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