Dealers look to build customer relationships during auto recalls

Sept. 23, 2014
With all the recalls, you'd think auto dealerships might be getting a black eye with the OEMs. But sales figures have largely not been affected by the recalls, and dealer service departments may actually benefit from the increase in traffic.

Automakers have had a rough year when it comes to recalls. In the first six months of 2014, with nearly 40 million vehicles under repair campaigns, the industry already shattered the existing record for total annual recalls, and there were still more to come.

General Motors recalled 25.8 million vehicles, which is nearly as high as the full-year figure for 2013 for all automakers. Rental car giants Hertz and Avis reported that the recalls affected their fleets enough to put a dent in this year's earnings, to the tune of tens of millions of dollars.

With all of the ongoing repair notices and the associated bad publicity, you'd think auto dealerships might be getting a black eye right along with the big OEMs. But sales figures have largely not been affected by the recalls, and dealer service departments may actually benefit from the increase in traffic.

Yes, recalls generate a lot of bad press, and dealers serve as the face of the automakers since they're the ones performing the repairs. However, there's not necessarily much negative impact on the dealership as a whole, and recalls may even present some opportunities for the service and parts departments to work with customers who otherwise wouldn't have brought their vehicles to the dealership in the first place.

In fact, the high number of very large recalls has had a direct impact on dealer service departments. AutoNation announced it planned to hire 400 additional technicians, and will likely hire hundreds more because of the recall, according to interviews with CEO Mike Jackson.

"Recalls are just a fact of life for drivers," says Ken Coker, owner at Coker Automotive Consultants, a Birmingham, Ala.-based firm that specializes in dealership and aftermarket service consulting. "It's almost become too common, and owners don't take them as seriously as they should. I will occasionally pull a list of open recalls and find ones that I think are serious, and there are hundreds of owners that haven't brought them in for the fix yet."

How the recalls are affecting sales is mixed. GM took a financial hit from the recalls, but sales numbers remained strong. Some dealers have even reported selling new cars to customers who originally came in for recall repairs.

Low margins on recall work

Recall repairs aren't necessarily good revenue generators for the dealer service department. GM's well-publicized Cobalt ignition switch fix, for example, likely costs a few hundred dollars. GM eats that cost, but the dealers don't necessarily make much of a profit on the repair given the additional paperwork involved.

"For the most part, recalls are not very profitable for the dealership," Coker says. "They don't pay a lot of money, just a nominal amount. Manufacturers have done a good job keeping their own costs down. For the smaller repairs, by the time you do the paperwork and tag all the parts that have be returned, you may not even be making any money at all."

Parts availability also has been a challenge for dealers. GM alone has issued dozens of recalls since the ignition switch issue came to light, but the flow of parts has tended to lag the recall announcements. Sometimes, drivers know about the recalls before the dealerships, leaving service advisors scrambling when calls start coming in. Some customers have had to wait a month or more for parts. For less critical recalls it's not that big of a deal. In the case of the ignition switch, customers are left worrying whether or not their vehicle is safe to drive.

"It's very frustrating for dealers in that regard, because they can't give the customer the necessary information to help them," Coker says. "It creates a lot of traffic, because they recall vehicles at the drop of a hat now. It's hard to get parts, and that leaves dealers in a bad position with the customer. They think the dealership doesn't want to do the work, they don't have the parts, and they don't always have all the information they need."

Dealerships also have to use the VIN number of the vehicle to order the recall parts, so they don't always have enough parts in stock even when they know the recall is coming. "The parts trickle in, and you have to make multiple visits and multiple inquiries," Coker says. "Dealers don't always do a great job of calling customers back when the parts finally come in. That's one of the reasons the recalls aren't necessarily any kind of boon for the dealers."

Recalls do provide an opportunity for the service writer to look over the vehicle and possibly suggest additional work. Some customers will at least buy an oil change since they're in the shop already.

"I don't think most dealers are looking to sell anything on that first visit, but you can possibly turn a corner with the customer and treat them well while they are in your facility," Coker says. "Some may pick up new customers from this. I know most dealers are overwhelmed with phone calls and traffic, but it's hard to tell what the affect will be."

In some cases, the owners may have been referred to the dealership by their own aftermarket repair shop. "These may be second or third owners, and they'll come in with a printout and say their mechanic told them about the recall," Coker says. "The independents are using this as an opportunity to say, 'we can't do this for you for free, but you can take it to a dealer, just remember who advised you about it.'"

While dealerships scramble to meet the demand for recall repairs, GM will face more legal challenges related to the ignition switch problem. In August, the automaker lost a bid to dismiss a lawsuit that accused the company of concealing evidence about the faulty switches in the case of a Georgia woman who died in 2010. The courts are still trying to decide how much liability post-bankruptcy GM has for pre-bankruptcy GM's failure to take action on the ignition switch issue.

Luckily for dealers, most of the bad feelings about the recall don't necessarily bleed over onto the dealerships. "Some customers will say, 'This is the last time I'm buying a Toyota,' but you don't get much of that," Coker says. "They want to get the issue fixed. It doesn't seem to damage the brand much. We certainly haven't seen that in sales numbers."

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