I. EFFECTIVE WORKSHOP MANAGEMENT AND ENHANCED PROFITABILITY
There is a radical change in the last few years in the automobile distribution business. The models which had very large waiting periods like Premier and Ambassador have already vanished from the markets.
At present times we see the spectacle of Maruti the advent of which revolutionised the Indian Auto market comprehensively and which has always enjoyed more than 80% market share is facing focussed, undeterred onslaught on its preserve from various other world class automobiles. There is a fierce competition among the manufacturers between one another and as well among the dealers to capture the market share. The quality of the vehicles has become extremely good and customers have become more and more aware about their rights and have very high expectations on services from dealers. Manufacturers have compelled dealers to invest more and more on show room upgradation and high tech workshops.
Due to such fierce competition, advertising and marketing costs are on the rise. Subvention levels have gone up beyond imagination and it has almost wiped out the dealers margin as well as the incentives offered by finance companies and the manufacturers. Huge investment in vehicles and spare parts stocks and fixed capital investment in workshop has resulted in very high interest costs in running the dealership business. The only good thing coming out of this scenario is that customers are aware of the quality of work done by the authorized dealers and would like to continue with them provided dealers offer them consistently good quality services.
The only avenue to earn revenue for the dealership's survival is from the workshop and the allied activities.
To run the workshop effectively and profitably, optimum utilization of available infrastructure needs to be exploited. Systematic planning, management and monitoring of the workshop' are absolutely essential to meet the above objectives. In order to achieve this, the Works Manager should have control over the following aspects:
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Service Management |
| ▪ |
Service Work Control |
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Technical Service and Warranty |
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Service Facility and Equipment |
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Control over Parts Inventory |
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Good Personnel Management |
All the above points are elaborated upon for better understanding.
(a) Service Management:
This consists of Annual Business Planning and Follow up Planning with Performance Evaluation.
Based on the infrastructure available and the guidelines provided by Principals, annual budget can be planned. For e.g. if you have a 10-bay workshop and guidelines provided by manufacturer is 2.5 to 3 vehs per bay, then a dealership should be able to roll out 25 to 30 vehs per bay.
See the typical car workshop working with expenditure and profit statement in the annexure. You can evaluate your working and implement your plan of actions till you reach the benchmark.
(b) Service Work Control:
The following are the aspects of service work control:
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Improvement of work activities |
| ▪ |
Improvement of efficiency |
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Prevention of repeat jobs |
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Implementation of Inspection and Maintenance works |
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Support to the workshop from dealers |
The mission of service dept is to carry out service efficiently with efforts to improve profitability. Service income depends upon the labour sales.
Labour sales = man hour rate x flat rate hours.
In most cases, the man hour rates are fixed by manufacturers. As workshop is not a manufacturing unit, there is always a waiting between two jobs. Actual utilization of work-shop of more than 80% will be an ideal situation. Efficiency of the team of mechanics can be evaluated by the following formula:
Efficiency = flat rate hours / actual working hours = > 80% is an ideal situation.
(c) Technical Service and Warranty Control:
1. Technical Service :
Technical information and the data provided by manufacturers should be communicated well in time to the supervisors and the mechanics, so that timely action can be taken in case of default in material which is being found by the manufacturers before the customer complains about the quality, thereby maintaining the image of the product. We should have the facility for in-house training constantly reviewed and upgraded and we should closely monitor the on the job training provided to the technical personnel at various levels effectively.
2. Warranty Control :
The warranty policy of the manufacturers should be available with the supervisors on the shop floor. The warranty failed parts are to be stored as per guidelines provided by the manufacturers. Timely dispatch of the warranty failed parts or timely inspection of the warranty failed parts by the manufacturers in addition to raising warranty claims in time and pending statement of warranty claims should be monitored and reconciled on a monthly basis. This will save a lot of money.
(d) Service facility and equipment control :
Proper house keeping of the reception and shop floor areas will enhance the image and efficiency of the organization. As mentioned earlier, there is a huge investment in high tech equipment in the workshop. Proper preventive maintenance should be available to take care of the unusual break downs of the machinery so that there should not be any loss of time at the workshop. Separate incentive schemes should be implemented for maximum utilization of the state-of-the-art equipment and generate revenue thereof like:
Wheel Alighnment and Wheel Balancing, PUC Certification, Carbon Cleaning, Dinitrol Treatment, Underbody Coating etc.,
(e) Control over Parts Inventory :
Adequate parts inventory required should be stocked at the workshop site and proper planning to avoid VOR indetents and enhance the productivity of the workshop. Wherever the parts warehouse is situated at another location far from the workshop and a retail sale is being made from the ware house, the first priority should be given to the work-shop requirements as we retain full margin on the parts when the parts are consumed at the workshop.
(f) Good Personnel Management :
People working in the workshop should be highly motivated. Motivation alone will result in high productivity and better retention of personnel. There should be constant innovative incentive schemes being floated to increase the productivity and thereby bring higher earnings to the personnel working on the shop floor. There are laid down norms to measure the productivity of each and every mechanic or team working on the vehicles. Declarations each month like 'Best Mechanic of the Month" or 'Best Supervisor of the Month' accompanied by an award will boost the morale of the personnel. There should also be a strict set of regulations to discourage late coming, early leaving and absenteeism from work.
Workshop activities can be divided into two categories.
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Obligatory Services (Mandatory) |
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Revenue Generating Services. |
(a) Obligatory Services :
The following activities falling under this category help the dealer to build contact with the customers for an eventual enduring relationship with them:
Pre-Delivery Inspection : From the manufacturers situated in different parts of the country, all vehicles are being transported by truck or by rail to the dealerships and dealers have to check the vehicles and carry out the POI after which delivery can be made to the customers. It is not revenue generating but a mandatory service to be provided from the dealers to the customers.
Free Services : It is mandatory for the dealers to provide' free services to the customer irrespective of where the customer purchased his vehicle. The recent trend is to provide free services with materials, to retain the customer's loyalty to the manufacturer. Dealers do not earn much revenue on the free services.
Warranty Repairs : To infuse the confidence of the customers into the product, vehicle
manufacturers have started giving one or two years warranty irrespective of kms run. Some manufacturers or dealers have come up with extended warranty schemes whereby they generate some revenue. The reimbursement on the parts and labour consumed on warranty does not bring in much revenue for dealers. Manufacturers are liberal in giving warranty and good will warranty is also an added burden on dealership workshops.
If PDI, free service, warranty services are handled properly, customers will patronize the services of the dealers and also become a spokesmen for dealers, which generate more business for dealership organizations. Generally, there is a tendency for customers to move to road side garages after free service and warranty period is over. To retain the loyalty of the customers, the dealer could have an Annual Maintenance Contract and Customer Care Clubs and also Warrantees programmes like being done in the case of Maruti dealerships.
(b) Revenue generating services:
Major source of revenue comes from the following activities of the workshop:
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Quick Repairs |
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Running repairs / paid services |
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Accident repair services |
Accident Repairs :
One of the most profitable areas of workshop is Accident Repairs. Proper education, guidelines and support to customers for accident repairs can increase profitability to a greater extent, and tie-ups with Insurance Companies can be made with proper understanding to give trouble free service to the customers. In such tie ups beginning right from the stage of taking care of the vehicle till delivery to the customers being collected, the role and responsibility of the customer is 'zero' except for signing of the claim form and a vehicle can be released without a single paise from the customer being collected, if there is no liability from the customer's side on accident repairs.
When such mutually beneficial tie ups are made with an insurance company, the procedure is simplified and the delay at various stages gets reduced, if not avoided fully.
In such a scenario,
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All new vehicle sales cover notes would be obtained thru' particular insurance company. |
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On receipt of accident vehicles, all documents are checked by the workshop personnel and the claim form got signed by the insured. |
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It is likely that the insurance company would give the dealer an independent panel of surveyors, whom the workshop can call directly for a survey; by mutual consent it is in all likelihood possible that claims for less than a specific amount say 20000 - 25000 rupees incase of 4 wheelers or 20003000 in case of two wheelers may be exempt from final inspection. And once the insurance company gets the final bill checked from the surveyor, the claim would be settled within a couple of weeks and payment sent directly to the dealer. |
A word of caution here is that, in the case of commercial vehicles wherein the depreciation is charged based on the age of the vehicle, one has to be very meticulous in assessing the loss.
By such tie ups, the Dealer gets repairing, sells service and sells parts of considerable value with full margins and of course the customer is happy because the vehicle is back on road within short time.
Don't you think this is a win-win situation for all ?
There are also instances where some dealers as an enabling measure, have the following floating units like:
Cabin Assembly, Chassis Assembly, Front Axel, Rear Axel, Starter assembly, Engine Assembly, Alternator Assembly, F1 pump, Wheel rims, Rear Cargo Body, etc.
In other words, the tools used depend upon the situation and the age of the vehicles.
You will find later in the subsequent pages a detailed "GUIDELINES ON BODY SHOP" providing guidelines for accident repairs which could be separately printed and circulated to all concerned to understand the procedure in treating the vehicles met with accident.
Productivity can be increased by quality repair with minimum down time. Efficiency can be increased by proper allocation and timely monitoring of jobs. Repeat jobs can be prevented by total quality control and final inspection.
Absorption Ratio formula is :
Total service and parts revenue / Total overhead expenses X 100 = > 70%
As discussed earlier, due to fierce competition and high subvention levels, the margin on the sales is under tremendous pressure. Hence, profitability of the organization highly depends upon the performance of the workshop and absorption ratio above 70% is most desirable.
Other Areas Generating Revenue / Saving Costs :
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Price negotiations with Oil companies and such others for other consumables like cotton waste, soap, etc., |
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Proper storage and segregation of scrap like steel, aluminium, wood, card boards and selling them separately |
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Sale of used oil |
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Sale of auto parts not collected by the customers, like bearings, clutch plates, windscreens or door glasses etc., |
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Recycling of water where water in limited quantity is supplied by the Public utility Agencies of Govt. / Municipal local administration or if there is limitations on own water resources. Recycling in such instances ensure constant availability of water for washing of vehicles and simultaneously the residual water let out in the drain is properly treated meeting statutory pollution control norms. |
All above measures collectively increase profitability of the workshop and improve the Absorption Ratio.
ANNEXURE
DEALER WORKSHOP FOR CARS/UTILITY VEHICLES BENCH MARK FOR PROFITABILITY
The working of workshop profitability is designed for a turn out of 40-50 cars per day in a typical working i.e approximately 1000 cars per month for 'A' category. Similarly for 'B' Category it will be approx. 700 cars and for 'C', 500 cars per month.
Total manpower required for this operation depending on the size of workshop is about 60 or 45 or 25 persons including managerial, accounts, computers and contractors. They have been defined and tabulated. Similarly Revenue and Expenditure data are also furnished.
Sr.
No. |
Position |
Category
'A' |
Category
'B' |
Category
'C' |
Your workshop
Status
|
| (a) On Payroll |
|
|
|
|
| 1 |
Manager |
1 |
1 |
0 |
|
| 2 |
Accountant, Computer Operator |
3 |
2 |
2 |
|
| 3 |
Asstt. Manager |
2 |
1 |
1 |
|
| 4 |
Supervisors incl. floor Supervisors and wry. Supervisor |
4 |
3 |
2 |
|
| 5 |
Foreman |
2 |
2 |
1 |
|
| 6 |
Mechanics including Electrician |
16 |
12 |
6 |
|
| 7 |
Helpers |
12 |
8 |
4 |
|
Sub Total |
40 |
29 |
16 |
|
| (b) On Contract : |
|
|
|
|
| 1 |
Supervisor for quality control
(may be Company employee) |
1 |
1 |
NA |
|
| 2 |
Denting team |
7 |
5 |
3 |
|
| 3 |
Painting team |
7 |
5 |
3 |
|
| 4 |
Uphostry |
1 |
1 |
0 |
|
| 5 |
Washing |
4 |
3 |
2 |
|
Sub Total |
20 |
15 |
8 |
|
Total |
60 |
45 |
24 |
|
| Working Bays |
15 |
10 |
7 |
|
| Notes : |
|
▪ |
Separate bays for body work & painting |
| |
|
▪ |
Single shift working |
| |
Category
'A'
|
Category
'B' |
Category
'C' |
Your Workshop
Status
|
| Mechanical repairs |
3.00 |
2.00 |
1.00 |
|
| Accident repairs |
6.00 |
4.00 |
2.00 |
|
| Oil |
2.00 |
1.50 |
1.00 |
|
| Others |
1.00 |
0.50 |
0.25 |
|
Sub Total |
12.00 |
8.00 |
4.25 |
|
| Spare parts sale in workshop |
30.00 |
20.00 |
10.00 |
|
10% margin on spares allocable
to work shop |
3.00 |
2.00 |
1.00 |
|
Total Workshop Revenue +
Margin on parts |
15.00 |
10.00 |
5.25 |
|
EXPENDITURE
| I. Manpower Cost |
|
|
|
|
a) Employees cost all inclusive -
managerial, technical & non -
technical
|
2.50 |
1.75 |
0.80 |
|
b) Incentive (10% on revenue
exceeding 12 lacs, 7.5 lacs & 4.5
lacs respectively) |
0.30 |
0.25 |
0.10 |
|
c) Payments to Contractors (30% - 50%)
|
2.20 |
1.00 |
0.40 |
|
| Sub total (1) |
5.00 |
3.00 |
1.30 |
|
II. Variable Expenses
Paints
Oil
Others
|
(0.75)
(1.50)
(0.25)
|
|
|
|
| Sub total (2) |
2.50 |
1.50 |
0.70 |
|
III. Fixed expenses
Rent
Security
Electricity
Water
Repair & Maintenance
Others (stationery & Computer)
Discounts to customers
Misc.
|
0.50
0.15
0.20
0.05
0.25
0.25
0.50
0.10
|
0.30
0.10
0.15
0.04
0.15
0.15
0.30
0.08 |
0.20
0.08
0.10
0.03
0.10
0.10
0.20
0.05 |
|
| Sub total (3) |
2.00 |
1.27 |
0.86 |
|
| Total Expenses (1+2+3) |
9.50 |
5.77 |
2.86 |
|
Surplus
(Income - Expenses) |
5.50 |
4.23 |
2.41 |
|
This is for you to compute your workshop working. These datas have been derived from taking into account four successful workshops in Rajasthan. These are the bench marks where you can compare your dealership's working and improve on. For any further details/inputs, please do write to Chairman, Group 20.
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