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Why Valeting Isn't the Answer For Your Dealership

posted 19 January, 2021 by Ethan Peikes
Digital Servicing
 
Given a binary choice between offering pickup/drop-off services or not, there is no questioning the immense value to dealerships in providing these services. The added convenience to customers reduces leakage to third-party service providers, and the average service price is generally higher. With that said, the idea that valeting is the most cost-effective solution for offering added convenience and achieving more predictable demand isn’t logical. The far superior solution is to offer specific service, especially preventative maintenance, on-site at customers’ homes or workplaces.
 
Let’s first look at the cost of valeting, the most glaring drawback. Valeting requires twice as much travel and labor for the dealer as performing services on site. The dealer has to send two employees (one to drive the dealer’s vehicle and one to drive the customer’s vehicle) to both pick up and drop off the customer’s car, so they travel to the pickup location twice. If they performed services on-site, they’d only have to travel there once and with only one technician. Over time, the added labor and fuel cost, in addition to the wear and tear on the dealer’s truck, adds up.
 
The second component relates more to the customer experience. With valeting, the customer loses access to their car for a period of several hours or days. If services are performed on-site, the vehicle never leaves their driveway. They have much greater transparency when the services are complete and an added sense of security since their car is right where they left it.
 
Finally, valeting offers the dealer a difficult choice between overpriced labor, riskier labor, or unnecessary additional labor. 
 
Overpriced Labor: If a dealer simply opts to have one of their mechanics operating a van, they’re paying excessive wages for an employee to act as a valet driver.
 
Riskier Labor: Some dealers may opt to use gig economy workers to reduce costs. In this case, they have much less insight into who their drivers are and would be entrusting them with their customers’ precious assets. It opens the dealer up to legal and reputational risk.
 
Added Labor: Finally, the dealer can opt to hire valet drivers full or part-time, in which case they have to add staff. Creating a position for that specific role represents an additional cost in terms of salary and benefits, as well as the expenses from the hiring process itself.
 
Dealers may find that while it would be great to offer on-site services, the upfront cost to purchase vans and upfit them with the proper equipment is just too high. So, why not outsource that function? That’s where Spiffy comes in. 
 
The dealer may be hesitant to pay a third-party for vans, equipment, and other necessary resources, but this viewpoint misses the bigger picture. The metric they should be concerned about is leakage, which measures how many car buyers go to third-party shops for car services rather than returning to the dealership’s service department. Dealership service departments are the most profitable revenue source but only retain 28 percent of that dealer’s car buyers. According to our analysis, decreasing leakage by just 5 percent can result in an increase of over $300 in revenue per unit in operation. 
 
Offering customers greater convenience makes them more likely to return to the dealership for more significant services, such as engine repair. Performing on-site preventative maintenance also allows the technician to inspect the car and identify other service needs, leading to additional revenue opportunities.
 
Auto service providers don’t make the bulk of their revenue on wash/detail (8.2%) or oil/lube (5.5%). On average, they make it on general repair (45.6%) and body/paint/interior (29.9%). It’s worth making wash/detail and oil/lube more convenient to cash in later on higher-grossing services. 
 
Finally, while margins on a percentage basis are attractive for preventative maintenance like oil changes, the low dollar margin makes valeting for this service economically unviable. It would be much better to perform functions like this on-site and reserve valet services for engine repair and other larger jobs that have higher dollar margin figures. 
 
In sum, it’s clear what’s attractive to dealerships about offering valet services to their customers: increased predictability around demand and added convenience from the customers’ perspective, leading to higher revenues and lower churn. Valeting is a step in the right direction. Those who want to offer the most convenient and cost-effective solution will need to integrate a “we-come-to-you” model for certain services as well. 
 
Are you interested in expanding into mobile services for your customers? Learn more about how our Digital Servicing package can jump-start your operation with the tools and resources you need to do the job right!
 
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Posted in Digital Servicing

Written by Ethan Peikes

Ethan is a Consultant working with Spiffy's Strategy team. He loves clean cars, bad sports teams, and hanging out with his three-legged dog, Luci.