Section 1: The ServiceSim Case

Background Information
RumbleSeat LLC owns fifteen auto dealerships of various auto manufacturers in the Tri-State area. The
partnership has successfully grown its business by focusing on exceptional customer service and
building its dealerships in locations with moderate to high growth rates. The partners have recently
decided to expand into Cyberwood, a new suburban community outside a major metropolitan area. The
major employer in Cyberwood is MicroFlex, a rapidly growing software company and Internet portal.
MicroFlex has retained its headquarters and base of operations in Cyberwood while growing from
twenty employees just five years ago to over five thousand today. Cyberwoods future looks very bright
and continued rapid growth is expected. RumbleSeat hopes to capitalize on this expected growth
through expansion into this new geographic area.
National Motors Corp (NMC), a leading auto manufacturer, has approached RumbleSeat about
purchasing one of NMC's existing dealerships in Cyberwood or possibly starting a new one. NMC has
three dealerships in Cyberwood, two of which are available for purchase. They are also offering a
potential start-up in a fourth location, near where much of the new growth in Cyberwood is centered.
Whichever dealership RumbleSeat decides to purchase will compete for business with the other dealers
in Cyberwood.
Exhibit 1.1 - Map of Cyberwood Showing Dealership Locations

Note: In some situations, the dealership, complexity level, and environment may be pre-chosen by your
instructor. Your instructor has made this decision to put you in an environment appropriate for his or
her learning objectives. If this is the case, please just read the background information for the
dealership that you will be managing rather than contemplating the purchase decision.

The ServiceSim Case - Page 7

The Dealerships
As the parts and service managers of RumbleSeats new dealership, your teams first job is to help
decide which of the dealerships is the best investment. You will be responsible for the first year of new
operations. Each has advantages and disadvantages, and the up-front investment varies as well.
RumbleSeat is willing to spend up to $1 million on this venture, but obviously wants the best return on
that investment. Each dealership is described briefly below.

FastLane Deals
FastLane has been in business for 6 years and is located on Cyberwood's "Motor Mile" on the north side
of town, along with 4 dealerships representing other auto manufacturers. As Cyberwood has continued
to grow, many new homes and developments have been built north of the city, though most future
development is now planned for west of the city, closer to MicroFlex's headquarters, which are located
west of State Route 1, between US 66 and State Route 2. These new communities, along with the
healthy growth in the local economy, have been the source of much of FastLane's growth in new car
sales. National considers the dealership's location to be the best in Cyberwood, but after a solid start-up
phase, performance has deteriorated somewhat in recent years. New car sales continue to be robust, but
the parts and service side of the business has lagged. Though overall profitability has been slightly
better than average for dealerships of this size, service quality as measured by Nationals total
satisfaction index, or TSI, has lagged in the bottom 50% of NMC's dealers.
The dealership has been owned and run as a family business. However, the couple that owns the
business is in the process of a divorce, and they are selling the business. Their son and daughter, who
have worked in new car sales, are willing to stay on during the transition. The partners have indicated to
NMC's Regional Manager that they would sell the business for $950,000, but in negotiations,
RumbleSeat was able to lower the price to $750,000.
FastLane currently accounts for 55% of NMC's new car sales and 38% of their repair business in
Cyberwood. With proper management, NMC believes these values, especially the parts and service
sales, could be improved. FastLane's income statement, balance sheet, and TSI ratings are provided in
Exhibit 1.2.

Downtown Motors
Downtown Motors is NMC's original dealership in Cyberwood. John Henderson bought the dealership
20 years ago at age 47 and still manages it today. As Cyberwood's suburban areas grew, Downtown
Motors did not participate in much of that growth because of their location in a declining area. In fact,
two years after FastLane Deals opened, Mr. Henderson let the lease expire on half of his lot capacity
because of slow new car sales. In the face of declining sales and lower than average service, Mr.
Henderson has decided to retire and has put his dealership up for sale for $250,000 plus the book value
of inventory at the time of sale.
One bright spot for Downtown Motors is that Cyberwood's city center is experiencing a bit of a rebirth.
More and more people are working downtown. MicroFlex has recently announced that they will be
opening a new R&D center in the downtown area, employing more than 300 people. The center is
ServiceSim User's Manual Page 8

expected to open in June. This growth may bode well for Downtown Motors' service business, as it will
be convenient for customers to drop off their vehicles on their way to work. In addition, Downtown's
wholesale business is tops among NMC's dealerships and supplies over 80% of body and mechanical
parts for NMC vehicles to independent service shops in Cyberwood.
Downtown currently accounts for 15% of NMC's new car sales and 23% of their repair business in
Cyberwood. With proper management, NMC believes their repair and wholesale business could
become quite profitable. If you take on this challenge, you will need to decide how strongly to defend
the wholesale business and whether your prospects for retail growth justify your investment.
Downtown's income statement, balance sheet, and TSI ratings are provided in Exhibit 1.3.

CountrySide Cars
NMC's third dealership, CountrySide, serves the semi-rural market east of Cyberwood. CountrySide
currently accounts for 30% of NMC's new car sales and 39% of their repair business in Cyberwood, but
they are aggressively trying to increase share. CountrySide's income statement and balance sheet are
not available, but NMC has disclosed that they are the most profitable of the three current dealerships
and have TSI ratings in the top 25% of NMC's dealerships.
Note: CountrySide is not currently for sale, but you should consider how this competitor might seek to
attract business from the dealership you do choose.

New Dealership - WestSide Motors

NMC's proposed new dealership location is on the west side of Cyberwood, just off the US 66 and State
Route 1 interchange. This location is only a few miles from MicroFlex's headquarters with easy access
from the area where much of Cyberwood's new residential development is planned. Should RumbleSeat
decide to invest in the new dealership, they believe the new dealership will be ready to open for January,
at about the same time they could take possession of one of the existing dealerships. RumbleSeat is the
only current party ready to move on this opportunity, making them the preferred buyer. Several other
parties have expressed interest and, should RumbleSeat pass, it is expected that the new dealership will
get started sometime during the year, depending on circumstances. The new dealership will cost a total
of approximately $750,000 $500,000 for the dealership and $250,000 for equipment. In addition, the
new management team will have to purchase parts inventory, hire new personnel, and be prepared to
sustain some losses while the dealership gets off the ground. It is expected that when the new dealership
opens, it will have an adverse effect on other dealerships in town. In the long term, NMC believes that
Cyberwood's growth and NMC's new product offerings will sustain four profitable dealerships.
RumbleSeats past corporate success has been built on providing exceptional customer service in
outstanding locations. WestSide Motors might provide you with a similar opportunity. However, there
is risk involved in opening a brand new dealership. Historically, RumbleSeat has made its money by
buying existing dealerships and adding value to those operations. The corporate expertise lies in
strategically growing an existing base through superior operations management. Taking on a new
dealership requires the ability to forecast demand, construct a facility to meet that demand, and then
implement a plan without the benefit of prior operational data and indicators. If you choose to proceed

The ServiceSim Case - Page 9

with Westside, you have found a memo detailing past research conducted on needs during the first year
of a new dealership. (See Exhibit 1.4)
The lack of historical data will make decision-making more difficult. Nonetheless, although it is very
unlikely that the business will be profitable during much of the first year of operations, the long-term
prospects of this business are strong.

Dealerships - Key Points

After going on site to each potential location, you review your notes and summarize the decision as
follows:
FastLane Deals
Traditional dealership along Cyberwood's Motor Mile.
Good new car sales, but lagging in service quality.
Will they gain sales from better service?
Downtown Motors
Older dealership, strongest in wholesale parts sales.
City center experiencing some new growth but is it enough?
Less expensive to purchase than FastLane.
WestSide Motors
New dealership in fastest growing area of Cyberwood.
Can the experience gained in other dealerships be used to plan staffing, inventory, etc.?
Fast growth may offer greater rewards with profitable operations established during the second
half of the year.

Note: Dont choose the dealership at this point. Wait until you have read the rest of the case and
skimmed the operations guide. Learning more about the context will help with your decision. When you
are ready to assume the operations of a dealership, read the appropriate section of the operations guide
for instructions on how to choose one.

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Exhibit 1.2 - FastLane Deals Financial Summary

National Motors Dealership #264:

FastLane Deals, Cyberwood

Income Statement

Sales
Gross
Compensation
Owner
Management
Clerical
Other Salaries/Wages
Taxes, Benefits, Ins.
Total Compensation
Semi-Fixed Expenses
Tools and Supplies
Service Policy
Laundry and Uniforms
Outside Services
Interest Expense
Credit Card Expense
Other
Total Semi-Fixed Expense
Fixed Expense
Rent
Depreciation
Equip. Rental/Repair
Other
Total Fixed Expense
Total Expenses
Operating Profit/Loss

Month
($)
$210,744
$115,570

Y-T-D
($)
$210,744
$115,570

$4,623
$10,000
$3,912
$21,258
$9,844
$49,638

Month
(%)

Y-T-D
(%)

55%

55%

$4,623
$10,000
$3,912
$21,258
$9,844
$49,638

4%
9%
3%
18%
9%
43%

4%
9%
3%
18%
9%
43%

$1,581
$1,930
$918
$3,643
$2,400
$2,802
$6,715
$19,989

$1,581
$1,930
$918
$3,643
$2,400
$2,802
$6,715
$19,989

1%
2%
1%
3%
2%
2%
6%
17%

1%
2%
1%
3%
2%
2%
6%
17%

$9,000
$3,417
$2,500
$4,300
$19,217
$88,843
$26,727

$9,000
$3,417
$2,500
$4,300
$19,217
$88,843
$26,727

8%
3%
2%
4%
17%
77%
23%

8%
3%
2%
4%
17%
77%
23%

Gross % is of sales, others are of gross.

Balance Sheet
Assets
Cash
Receivables
Inventory
Bldg and Equip
Depreciation

Dollars
$109,703
$27,489
$184,909
$205,000
$-46,417

Total Assets

$480,685

Liabilities
Payables
Debt
Total Liabilities
Stock
Retained Earnings
Total Equity
Total Liab and Eq

Dollars
$68,958
$320,000
$388,958
$10,000
$81,727
$86,727
$480,685

Customer Satisfaction
Service Satisfaction
Fixed 1st Visit
Ready when Promised
Parts Availability

Jan
89.4
82.7
86.5
86.2

The ServiceSim Case - Page 11

Exhibit 1.3 - Downtown Motors Financial Summary

National Motors Dealership #114:

Downtown Motors, Cyberwood

Income Statement
Sales
Gross
Compensation
Owner
Management
Clerical
Other Salaries/Wages
Taxes, Benefits, Ins.
Total Compensation
Semi-Fixed Expenses
Tools and Supplies
Adv/Promo
Service Policy
Laundry and Uniforms
Outside Services
Interest Expense
Credit Card Expense
Other
Total Semi-Fixed Expense
Fixed Expense
Rent
Depreciation
Equip. Rental/Repair
Other
Total Fixed Expense
Total Expenses
Operating Profit/Loss

Month
$244,012
$81,275

Y-T-D
$244,012
$81,275

Month

Y-T-D

33%

33%

$3,251
$10,000
$2,400
$13,918
$6,509
$36,078

$3,251
$10,000
$2,400
$13,918
$6,509
$36,078

4%
12%
3%
17%
8%
44%

4%
12%
3%
17%
8%
44%

$2,330
$400
$1,270
$556
$1,500
$2,333
$2,893
$7,380
$18,663

$2,330
$400
$1,270
$556
$1,500
$2,333
$2,893
$7,380
$18,663

3%
0%
2%
1%
2%
3%
4%
9%
23%

3%
0%
2%
1%
2%
3%
4%
9%
23%

$9,000
$2,583
$2,500
$3,900
$17,983
$72,724
$8,551

$9,000
$2,583
$2,500
$3,900
$17,983
$72,724
$8,551

11%
3%
3%
5%
22%
89%
11%

11%
3%
3%
5%
22%
89%
11%

Gross % is of sales, others are of gross.

Balance Sheet
Assets
Cash
Receivables
Inventory
Bldg and Equip
Depreciation
Total Assets

Dollars
$12,475
$154,699
$154,243
$155,000
$-111,583
$364,833

Customer Satisfaction
Service Satisfaction
Fixed 1st Visit
Ready when Promised
Parts Availability

Jan
86.4
82.4
73.3
81.0

ServiceSim User's Manual Page 12

Liabilities
Payables
Debt
Total Liabilities
Stock
Retained Earnings
Total Equity
Total Liab and Eq

Dollars
$102,282
$300,000
$402,282
$10,000
$-47,449
$-37,449
$364,833

Exhibit 1.4 - Memo Regarding Opening New Dealerships



 To: Parts and Service Manager

From: Eugene Scott, AllBright Motors 
Re: First Year of a New Dealership 
Thanks for your memo. I certainly understand your concerns about estimating demand. I can only
speak from my experience, and undoubtedly, yours will be different. However, there are some
general guidelines that may be of assistance to you.
Service Information: 
x

Customer Pay - 70% of service jobs 

x

Warranty - 10% 

x

Internal Work - varies depending on how many new cars are sold 

Parts Information: 
x

Customer Pay Repair Orders - 35C40% of parts sales, primarily fast moving parts 

x

Warranty - 7C9% of parts sales, primarily slow moving and non-stock parts Accessories 10C18% of parts sales 

x

Internal Parts - 4C8% of parts sales, a mix of parts 

x

Retail Parts - 9C12% of parts sales, a mix of parts 

x

Wholesale - 22C28% of parts sales dependent on pricing and aggressiveness 

Staffing a new dealership is a tricky business. Overstaff and you have a fair amount of costs to
swallow, making it difficult to be profitable. Understaff and you will be turning away business
and cause your TSI ratings to suffer. Service and parts sales will grow as more people become
aware of your dealership and are pleased with the service they receive from you.


A few general guidelines might be helpful. Probably the minimal configuration for the service
area would be 2 technicians plus a service advisor. For the parts department, I'd suggest at least 1
warm body. Of course, there are the two managers as well. So, at least for January, figure on a
minimum of 6 employees in the parts and service area.


As far as inventory is concerned, remember that you are purchasing for January's demand plus
stock. First month's parts sales are likely to be in the range of $25,000 - 75,000. I truly wish we
had better information for you, but these new dealerships are tricky that way. It will probably take
a few months before you get the hang of the proper supply of parts to best meet demand. You can
count on fast moving and wholesale parts to make up the majority of demand.


Be prepared to lose some money until you get a better grasp of demand at your dealership.
Advertising and promotion can help accelerate your sales curve. Hope this helps.


Scotty


The ServiceSim Case - Page 13

Dealership Operations Overview

Dealership operations involve managing the personnel, equipment, and the cash flow of the parts and
service departments and deciding on appropriate investments in equipment, inventory, marketing, and
personnel. The challenge is how well your management team can handle the complexities of running
the parts and service departments of a dealership while maintaining or improving service quality and
performance.
All of the dealerships have four basic areas of operation that management tracks new car sales, used
car sales, service (repairs and inspections), and parts (service, retail, and wholesale). Since you will be
managing the parts and service areas, your focus will be on those aspects of the business.
The Service Department and Parts Department are open 8:00 A.M. to 5:00 P.M. five days a week. Each
business month has 22 working days. Employees take one hour for lunch.
Staffing the parts and service departments is up to you. However, every dealership has at least a service
manager and a parts manager. It is up to your management team to hire the right people, both in terms
of quantity and quality. The new car sales department, used car sales department, and the business
office are staffed and administered by other RumbleSeat managers.
Focus only on the parts and service departments of your dealership!

Market Conditions
The total market size is defined as the number of National Motors (NMC) vehicles currently registered
in Cyberwood. Referred to as Units in Operation (UIO), there are 9,000 1989 and newer registered
UIOs in Cyberwood. This number is expected to grow in the future as the community expands and the
new dealership opens. Of course, the new dealership will have some impact on existing dealership
sales.
In addition to UIO, new cars sold at your dealership often require the installation of accessories. The
total market is made up of servicing old vehicles plus installing accessories on new ones.
Seasonal Trends
The market follows seasonal trends. NMC headquarters has provided you with the following national
averages in Exhibit 1.5. Obviously, local seasonal patterns may differ, but you can expect these general
fluctuations in the market. It is likely, however, that many other factors will be just as, if not more,
important to forecasting demand. Seasonality figures below should be interpreted by beginning with
January as a base value of 1.00. Other values are shown compared to January sales. A value of .85 for a
particular month, for example, means that demand for that month equals 85% of January demand.

ServiceSim User's Manual Page 14

Exhibit 1.5 - New and Used Car Sales, Labor, and Retail Parts and Service (1.00 = January) 
New and Used Car Sales, Labor, and Retail Parts:
Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

1.00

.93

1.10

.93

1.03

1.09

1.05

1.15

.88

1.02

1.02

.92

Wholesale Body Parts:

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

1.00

.92

.76

.71

.70

.61

.59

.71

.64

.77

.84

.67

Wholesale Mechanical Parts:

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

1.00

.93

1.01

1.21

1.21

1.31

1.20

1.21

.86

.97

1.20

.90

As one can readily determine from the above figures, seasonal fluctuations are likely to have a large
impact on sales and, therefore, profits. It is important to consider seasonal issues when planning
personnel and inventory/purchasing decisions.

Service Department
The service department sells repair services in the form of labor. There are three basic categories of
service or repair orders: Customer Pay (customer pays dealership for work performed), Warranty
(manufacturer pays dealership for repairs that fall under warranty period), and Internal (service
department bills other internal departments of the dealership for services performed). Within each of
these categories, each specific job may consist of a combination of parts and levels of technical skills
that are necessary to complete the job satisfactorily. From the customer's perspective, this means that
competent technicians must do the work, the proper parts must be available, a service advisor must
adequately explain the repair to the customer, and a fair price must be charged, all in a timely manner.
A more complete definition of the different types of repair orders follows.
Customer Pay: Standard automotive services such as tune-ups, oil changes, brake repair, and more
complicated repair work. In many dealerships, over 70% of service revenues come from Customer
Pay. This category also generates the highest parts sales in most dealerships.
Warranty: Any service on a vehicle that is still under warranty. Warranty work is around 10% of
an established dealers service business. Generally, this is the last work to get dispatched and the
last work to get done because the customer isn't paying for it. However, this service is very
important to new car owners, and their impression of your dealership depends on getting this work
done right the first time.
The ServiceSim Case - Page 15

Internal: Consists of new car pre-delivery (new car prep, delivery, and inspection), installation of
accessories, used car repair, and used car inspections. Internal work generates 15-20% of service
revenues for an established dealer with average new car sales. Each of these is described in more
detail below.
New Car Pre-Delivery:

Preparing a new car for delivery to the customer. Demand for this
type of work is a direct result of new car sales. On average, expect
1.4 hours of light duty labor per new car sold.

Accessories:

Dealer-installed options for new cars sold by the new car

department. Depending on the aggressiveness of the sales
department, sales of accessories can fluctuate wildly. Based on
historical information, each new car purchase generates about $130
of accessories and 0.5 hours of labor for installation.

Used Car Repair:

Of the used cars that are not wholesaled, 75% need repair work.
The average used car has about 4.0 hours of labor and a dollars
worth of parts for every dollars worth of labor.

Used Car Inspections:

In this market, approximately 80% of new car buyers trade in a

car. Therefore, the number of inspections is a factor of new car
sales and aggressiveness of the Used Car Manager. The Used Car
Manager has allowed 1.0 hour per used car for an inspection.
About 12% of the trade-ins will be resold elsewhere.

Service Department Personnel

The service department employs two general classifications of workers: technicians (the people who
actually perform the service on the vehicle) and support personnel (the people who oversee the process
and perform other non-billable tasks for the service department).
Technicians
Each repair order requires a different combination of skills to complete successfully. In the service
department, there are four different positions that perform the actual vehicle repairs. These can be
grouped by technician skill level as follows.
Tech Level 01 Entry Level Technician: Responsibilities include minor adjustments, oil
changes, new car pre-deliveries, used car inspections, and minor maintenance work. Average
efficiency within their skill area is approximately 110%.
Tech Level 02 Experienced Technician: Tech 2s can take most components apart and put them
back together, replace parts, rebuild motors, replace switches, clutches, and brakes. This person
understands the basics theories and can replace or rebuild most mechanical parts on the car.
Diagnostic skills are weak at best. If they cannot see it, they cannot fix it. Electrical problems are
beyond this persons realm of knowledge and experience. Average efficiency within their skill area
is approximately 110%.

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Tech Level 03 Master Technician: The master technician understands theory and can
intelligently debate applications. Precision work and analytical work are second nature. Diagnosis,
fuel injection, electrical repairs, ABS, and detailed technical work are all part of the master
technicians job description. Tech 3 technicians demand excellent working conditions and are not
easily replaced. They like their free time and will easily find work at another dealership if
overworked. Average efficiency within skill area is approximately 110%.
Lube Tech: This position specializes in oil changes. Can do some entry-level work in a pinch. It is
best to keep the lube tech busy in an express oil change bay.
It is important to have the right technicians performing the jobs that they are trained to perform. Having
tech 1s perform electrical repairs is likely to wind up taking an eternity, with the work being done
wrong. Likewise, assigning a tech 3 to do oil changes is not why you hired that person and is a waste of
the tech 3s expertise.

Support Personnel
Technician hours are billed to the customer. The rest of the service department is there to make the
process go smoothly. Here are the types of support positions found in service departments.
Service Manager: This position has five main responsibilities: 1) staff the service department,
including hiring, firing, and training; 2) set a labor rate that is competitive, yet profitable; 3)
negotiate wages that will provide the employees with satisfactory compensation and still maintain
respectable and acceptable levels of gross profit; 4) control expenses in the department while making
the proper expenditures to ensure efficient operation; and 5) fill in when areas are short-staffed.
When the service manager must fill in for someone, marketing and customer satisfaction may suffer.
Try not to spread this person too thin.
In effect, your team will take over this position in the simulation.
Service Advisors: This position is responsible for customer relations and assigning repair orders to
technicians. Without a warranty clerk, the service advisor will also handle the paperwork associated
with warranty repair orders. This person also suggests additional repair work to customers if
needed. Service advisor effectiveness begins to diminish at seventeen repair orders per day. Asking
the service advisor to handle over 22 repair orders (RO) without any additional support will lead to
poor performance and unhappy customers.
Dispatcher: In a larger dealership, the dispatcher handles assigning repair orders to technicians,
freeing up the service advisor to focus on customer relations. Typically, the dispatcher is technically
competent, but not the person you want up front dealing with customers.
Warranty Clerk: The warranty clerk handles all the administrative work associated with warranty
claims. Although this is not a necessary position, not having one shifts the workload to the service
manager and service advisors.

The ServiceSim Case - Page 17

Cashier: The cashier has more contact with the customer than any other person in the dealership
other than the service advisor. Traditionally, this has been a low paying, low esteem, and highly
unstable position. Compensation and workload determine the longevity of this position. One
cashier can effectively handle about 65 customers per day. If the workload gets excessive, cashiers
can easily find work in other businesses.
Porter: This position is a supporting role to the technicians and service advisors and is not
necessary until a dealership has at least four technicians. Porters move cars and handle other odds
and ends as necessary. They will also retrieve cars for customers and bring them to the customer at
the time of pick up. However, asking them to support two or three service advisors and ten
technicians is pushing them beyond their capabilities.
Service Department Wages
People exchange their time and skills for money. It is your obligation to your employer to return a
reasonable profit. It is your obligation to your employees to provide a clean, safe work environment,
where they can make a respectable living to provide for their families. Market averages for wages and
labor rates are provided in the simulation each month. If you pay a premium, you can expect to hire a
more talented individual. If you pay below market wages, you will probably only be able to hire those
who can't find a better paying job. Of course, training may help improve their skills, but low pay may
also cause higher turnover.
Service Overtime
With the exception of the service and parts managers, all department employees are eligible for
overtime. In the simulation, allocating overtime only means that overtime can be used to meet customer
demand if necessary. Overtime is a valuable tool if used judiciously. It is especially important during
peak periods of demand or when staffing is short-handed. Overtime compensation is as follows: 1-42
hours of overtime per month costs 1.5 times the normal wage rate, while 43-84 hours costs 2 times the
standard wage. Employees understand the need to work overtime during peak demand and often like the
additional wages. On the other hand, several months of 60-hour weeks can lead employees to seek a
more reasonable work schedule.
Efficiency
Experience and knowledge affect worker efficiency. Since the customer is billed in standard, or flat
rate hours, the faster a technician can complete a job, the more revenue is made for time spent. Since
there is a standard time for each job, an efficiency of 1.0 or greater means that the technician is able to
complete a standard job in less than standard time. Less than 1.0 means that the technician is not able to
work at even the company standard rate. A more efficient technician can complete more jobs in the
same amount of time. Efficiency is improved through training and experience.
Comeback Hours
Comebacks are repair orders that aren't fixed right. Mistakes will be compounded and increased when
employees are working in areas without adequate knowledge. Mistakes also occur when the employee
is overworked. In a nutshell, if employees dont have the necessary skill, training, and time, comebacks

ServiceSim User's Manual Page 18

will go up. Comebacks affect employee morale and, ultimately, customer satisfaction. Comeback hours
are the hours spent repairing cars that were not previously fixed correctly.
Your job is to move cars through the service department in the least amount of time at the maximum
gross profit, with the fewest comebacks, while keeping customers and employees satisfied.

Parts Department
The key to success in this area is having the right part at the right time. At the two extremes, your
choices are stocking every part in the catalog or stocking only the fastest of the fast-moving parts. Of
course, the right answer is somewhere between these extremes. Your job is to find the proper balance to
provide good service to customers while not tying up too much capital in slow-moving inventory.
There are three general types of parts sales. First is what is called Service Counter Parts Sales, which
represent internal parts sales to the service department. Second are Retail Parts Sales, which are parts
sales made directly to the customer and are not part of any service order. Third are Wholesale Parts
Sales, which are sales to other local service and body shops. Each of these categories is described in
more detail below, along with some guidance for what percentage of parts sales each category
represents.
Service Counter Parts
These are internal parts sales to the service department. There are six categories. In total, expect sales
to the service department to account for over 65% of parts sales.
Accessory Sales: These are the radios, mud flaps, alarms and so forth, that the new car department
has installed on new cars in stock. There may also be some accessory sales on customer pay and
warranty work. Total accessory sales represent 12-16% of total parts sales.
Used / Internal Parts Sales: These are the parts used to recondition used cars or to make repairs on
company vehicles that are not warrantable repairs. These represent 4% to 8% of total parts sales.
Warranty Parts Sales: The dealership buys warranty parts and then sells them back to the party
you bought them from at a reasonable mark-up. This is guaranteed business with each new car sold.
The down side is that a large percentage of the warranty parts are not fast-moving parts that you
normally stock. Warranty repair orders represent 7% to 9% of total parts sales.
Customer Pay Repair Order: In most dealerships, the service department is the parts department's
biggest and best customer. The bulk of their work is maintenance and light duty, requiring fastmoving parts. Customer pay represents 35% to 40% of total parts sales in a typical dealership.
Retail Parts Sales
Retail parts sales are those sales direct to the end customer typically a do-it-yourselfer or a small
independent shop. In total, this category represents about 10% of parts sales.

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Parts Counter Retail: This is the retail transaction directly to the customer off the street. The fix it
yourself in some cases the make-it-worse yourself weekend mechanic. These can be
extremely time intensive transactions, but represent 9% to 12% of total parts sales.
Accessory Counter Retail: These are sales to the off-the-street retail customers who want to make
their car unique. They want the car to shout out who they are. The items purchased become an
extension of their personality. They include a range of items from special hats and jackets to
fuzzy dice and represent less than 2% of parts sales. These direct sales to the owner of the car
can be time intensive.

Wholesale Parts Sales

Wholesale parts are sold to other dealerships and repair shops that then bill the ultimate consumer. They
have to generate sufficient volume to earn a discount. Expect wholesale to make up 20-25% of your
parts sales, but this is highly dependent on how you price and support the wholesale business. There are
two "hidden" benefits to your wholesale business. One benefit is the lower cost per mechanical part that
higher volume may create. Second is that by having more parts on hand, it is more likely that the right
part will be stocked for your service business.
Body and Mechanical Parts Sales: Body parts are exterior parts, such as the door, hood, roof, and
bumper. Mechanical parts are parts related to the engine, electrical system, brakes, and exhaust.
The fluctuations in wholesale do not follow that of service or new car sales, but have their own
trends. There seems to be a strong correlation, for example, between rotten weather, automobile
accidents, and an increase in wholesale body parts sales. This category includes sales to body shops,
independent garages, and other dealers. The vast majority of body parts sales are to body shops, and
the vast majority of mechanical sales are to independent service centers. An approximation of the
sales mix is in the neighborhood of 75% body to 25% mechanical. All of the above percentages are
assuming that the dealer is NOT aggressively pursuing the wholesale market. To increase your
market you may think about your decreasing your margin and spending more time on the phone with
wholesale customers. These represent 22% to 26% of total parts sales.
Wholesale Accessory Sales: These are accessories sold to body shops or independent repair
facilities. Most often these are for insurance jobs, rather than original installation, and represent less
than 2% of total parts sales.
Types of Parts
Parts in the dealership are typically classified into two general groups: stocked parts and non-stocked
parts. Stocked Parts are those that the dealership tries to have on the shelves and parts that earn a return
allowance and a stock order discount. In the simulation, these are ordered each month and grouped into
five general categories. Non-Stocked Parts are those parts that the dealership currently doesnt have in
stock. They may not be in stock by choice (warranty parts for example) or by oversight / low stocking
levels (emergency orders). More detail on these different part types is provided below.
Accessories: These are the radios, mud flaps, alarms and the like that the new car department has
installed on new cars in stock. There may also be some accessory sales on customer pay and
warranty work.
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Fast Moving: These are parts that almost fly off the shelf. They are also parts that can be found
almost anywhere: oil filters, fuel filters, spark plugs, brake pads, and maintenance items.
Medium Moving: These are parts that sell frequently enough to stock, but may be seasonal, or the
model age may be influencing the usage of these parts. Medium moving parts are those that
technicians think you should always have on hand: Why dont we stock a distributor for an 98 EX
Si? I just did one of those in June or July. Or was that last year?
Slow Moving: These are the parts that you can find way in the back of the parts department,
covered with dust. These parts are rarely needed.
Body Parts: Body parts are exterior parts, such as the door, hood, roof, and bumper. These are
wholesale parts, and their turnover rate depends on how you support the wholesale side of the
business.
Non-Stocked Parts: Typically, these are warranty parts. Often the part is so new to the system that
the ink hasnt dried on the bar code yet. This is the Ivory B-pillar trim for a 06 EXOL-SI with GPS.
These parts are shipped in a relatively short period of time usually within two days. However,
your reliance on this quick shipping can cost you business and profits.
Emergency Orders Parts: All non-stocked parts and those not found in current inventory
(inventory plus monthly purchases) must be handled through emergency orders. These are parts that
absolutely, positively, have to get there as fast as possible. Urgent orders are costly no discounts,
no return allowance, plus freight premium but youve got to have it for the customer.
Inventory
Inventory is a complex process to manage. What was hot today could be on its way to extinction in a
matter of weeks, if not days. This is complicated further by seasonal issues. To have $250,000 in
inventory and not have a part for a repair order or a retail parts customer is not only possible, but also
somewhat probable.
It is recommended that a well-balanced, well-stocked parts department maintain a sixty-day supply of
parts. Days supply is calculated as follows:
Inventory / average months cost of sales = months supply
Months supply X 30 = Days Supply
A parts order for the next month's sales will be made at the beginning of each month. Examples: When
you get Januarys results you will be placing orders for February. When you get Februarys results, you
will place March orders. Any parts that cannot be found either in inventory or in your monthly purchase
will be considered emergency orders that are purchased at a 20% premium.
Obsolete Parts
Obsolete parts are those that are found on your back shelves and have long since been forgotten. This
might happen when a customer never comes in to pick up a retail parts order, and no one sends it back in
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time, or the body parts that your second favorite body shop ordered as "rush need now," but later
decided they didnt need. These are parts that can no longer be returned. Like a weed, if not carefully
managed, this situation can get out of control. Making sure someone in the parts department is spending
time managing the inventory helps to keep obsolete parts off the shelves and not taking up space and
working capital.

Parts Department Personnel

The parts department is responsible for a number of tasks. Most important is finding the right part for
the service department. The service department can get backed up just because the right part is not in
stock or cannot be found quickly. Similarly, the retail parts counter is also important. It is difficult to
compete with the major auto parts chains on many items, but there are some areas where the dealership
has an advantage. Supporting the wholesale effort can also be an important role in the parts department.
All three of these functions require experienced personnel, especially the wholesale side of the business.
The other major type of parts department work involves logistics management shipping and
receiving, delivery and pickup, and inventory management. Though these functions can be staffed with
less-experienced personnel, it is important for the manager to oversee the entire process. Tasks such as
inventory management, if left unmanaged, tend to get postponed. Make sure there is adequate staffing
to stay on top of these important functions.
There are four skill / experience levels available for hire in the parts department: an hourly worker (H),
parts people (A and B), and a journeyman (J). Descriptions of these skill levels and the parts manager
position are described below.
Parts Manager
This position is every bit as complex as the inventory to be managed. Lets put this into perspective.
Each car contains an average of 40,000 parts. Multiply that figure by the number of models, times
eight to ten model years, then, excluding cross-over, add back in-service bulletins and active recalls.
Add in the human factor of two to eight department employees, all with unique personality traits,
factored by the number of wholesale accounts plus technicians in the shop. Take the sum total of all
that and include parts price increases and a demand by the dealer principal to work with a smaller
inventory, and you have an idea of whats involved in this position. In addition, proficiency on the
dealership computer system to manage the inventory is a necessity. Walking on water is a plus.
It is the responsibility of the parts manager to staff the department. The parts manager must
negotiate wages that will provide the employee with satisfactory compensation, while keeping
personnel expense in line. The parts manager must control expenses in the department, while
making the proper expenditures to ensure efficient operation.
It is the manager's responsibility to establish prices for all parts other than warranty and internal
business. The pricing must be made with all factors taken into consideration. The parts manager
must consider competition, expenses, customer satisfaction, and loyalty of that account.

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The parts manager picks up the slack when the department is short handed. If the parts manager has
to spend time working the shop counter, then that time will be taken away from developing
wholesale business or inventory management.
Journeyman
This employee has five or more years of experience in parts sales and is 20% to 30% more efficient
than an A level parts-person. Wholesale accounts ask for this person by name. Journeymen are
very sure of their skills and expect premium pay. If they change employers, they will take a
percentage of the wholesale business with them. They love their free time and may leave if expected
to work too much overtime.
A Parts Person
This person has from two years to five or more years of experience. Works well in all positions, but
does not normally have experience in the management areas.
B Parts Person
This person works shipping and receiving and part time on the retail counter to gain experience. At
least six months shop counter experience and one year wholesale experience is required before
moving up to the next level. Performs at about 60% to 80% of the A level parts person.
Hourly Parts Person
This level worker is primarily a parts pick-up and delivery person or shipping and receiving clerk
whose skills are fairly limited. Putting this person on the wholesale desk or back counter is an
invitation for disaster.

Expenses
Expenses fall into three general categories: Compensation, Semi-Fixed Expenses and Fixed Expenses.
Compensation is generally the cost associated with personnel. Semi-Fixed Expenses are those over
which the manager has some control. Fixed Expenses are those that are expected to stay constant
throughout the year.
Compensation
Compensation is divided into several accounts. The cost of the technicians is basically the cost of goods
sold. Each hour of service labor charged to the customer generates the labor cost expense of the
technician. This is subtracted from sales revenues to generate gross profit, as seen in the following
formula:
Sales Revenues Service Labor Charged = Gross Profit
Gross profit represents the amount of money available to run the service operations.

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Additional compensation accounts include a cut for the owner, salaries and commissions for the
managers and service advisors, and wages for other employees, such as the porters, dispatchers, and
warranty clerks. Additional compensation expenses include social security taxes, state unemployment
tax (SUTA), federal unemployment tax (FUTA), benefits, worker's compensation, and insurance.
Hiring employees costs more than just their salary. A recommended guide for non-technician expenses
is 40% to 45% of gross profit.
The service manager has some control over the amount spent in these accounts when setting wages and
deciding the staffing mix. Be careful, however, about deviating too much from market averages.
Employee turnover due to below market wages can be expensive and expected.

Semi-Fixed Expenses
The manager can control these expenses to some degree. Semi-fixed expenses include training costs,
investments in tools, advertising and promotional expenses, service policy, and other miscellaneous
operating expenses. A recommended guide for semi-fixed expenses is 13% to 15% of gross profit.
These expenses are described below.
Tools & Supplies
Your shop is equipped with tools and equipment. However, equipment and tools need to be
maintained, and new special tools are arriving all the time. Therefore, you will need to allocate
funds for maintaining your tools and equipment on an on-going basis. Supplies are purchased as
needed. Expenditures on tools typically run about 1% of labor sales.
Advertising and Promotion
The costs of promotional mailers and advertising media are included in this account. More details
on these options are described under marketing issues. Also included here are the costs associated
with advertising for recruiting new employees.
Training
All employees may be trained to improve their skills and productivity for their position. Training
costs $1,000 per person, and it occurs in the first week of the month. You will lose five days of
production for the person being trained and pay forty hours of wages as well.
As an example, there are two classes available for the Service Advisor position:
Basic Interpersonal Skills
Advanced Interpersonal Skills/Selling Techniques
These classes help build the self-confidence and knowledge of the Service Advisors. Both classes
focus on improving communications, a key to dealing with the customers. A well-trained Service
Advisor will have the tools and knowledge to recommend and sell needed services while gaining the
trust and confidence of the customer.

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Service Policy Expense

This account is where the costs of errors accumulate. Examples of this type of expense are: 1) an
employee damaging a car when moving it from the lot to the service bay; 2) adjustments made on
invoices to customers for "customer relations" purposes; and 3) denied warranty claims. This
account is where significant errors and opportunities for cost savings in the service department can
be found. 2% of gross profit is the upper end of what this should be, but when things are not
running well, this expense can increase dramatically.
Laundry and Uniforms
The cost of uniforms required by the dealership and all laundering services comes under this
expense category. It includes uniforms for service and parts department, blazers or other uniforms
for managers, and laundry services for uniforms, towels, rags, and other items used by the dealership
that require laundering. Typical costs run about $2-$3/day per employee.
Outside Services
This represents the cost of outside services used for maintenance, security, and similar services.
Typical items include building maintenance, security services, collection agencies, fees for credit
reports, landscape maintenance, temporary services, janitorial services, and disposal of hazardous
waste. Disposal costs run approximately $.15 for an oil change, and $2-3 for antifreeze.
Interest Expense
If the dealership has any loans, the interest expense accumulates in this account. Managing cash
flow is an important aspect of the dealership operations. Relying on loans to meet your obligations
can seriously affect your profitability.
Credit Card Expense
When customers use a credit card to pay for their repairs, the bank charges a fee of 2% for this
convenience. Customers expect to be able to use their credit cards, and they are more reliable for
payment than personal checks.
Fixed
As the name implies, these expenses are fixed. You cant change them over the short term. These
expenses include the rent or mortgage on the facility, and depreciation, repair and rental fees on the
equipment. The cost of the facility is substantial. But if you use your fixed expense as a guide, you can
back into the gross profit and sales you will need to generate to hit the profit targets. The recommended
guide for this expense category is 13% to 17% of gross profit.
Balance Sheet
While managing your income statement and customer satisfaction are the primary goals, do not forget
about the balance sheet. Running short on cash will cause you to take out more loans, and obviously the
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interest charged on those loans affects your operating profit. Using up your working capital on
inventory and accounts receivable also impacts your cash and return on assets. Monitor the usage of
your inventory storage space. Additional short-term rental costs may be necessary to house your parts.
All of these areas can significantly impact your operating profit. Allocate your personnel to manage
inventory and receivables prudently. Aim for a lean operation.

Marketing Issues
In the parts and service departments of the dealership, marketing consists of pricing and promotion
decisions. Pricing includes setting the labor rate and the margins for parts used in repair orders and
retail and wholesale. Promotion includes monthly advertising and direct mail promotional pieces. All
of these areas are described in further detail below.
Labor Rate
You need to determine a reasonable price for your product. The market will pay for quality, but if
customers dont feel they have received a reasonable value, customer satisfaction will suffer. The
market rate report includes local pricing information (see sample report in the Operations Guide).
Parts Pricing for Repair Orders
Each of the four types of service jobs has part sales associated with the service. You will set the gross
margin for parts used in accessories and customer pay repair orders. The gross margin for warranty
work and internal repairs is set according to the manufacturers guidelines. Changing the margin on
parts used in repairs will affect demand. This is especially true for accessories, as the new car
salespeople will more effectively be able to sell a reasonably priced product.
Retail and Wholesale Parts Pricing
In addition to parts used in repair orders, you will also set the margin for wholesale and retail parts.
Wholesale pricing should be set in tandem with your wholesale marketing aggressiveness. The
wholesale market is fairly sensitive to prices and will likely take their business elsewhere if too high a
price is charged. In that case, the parts just wont move.
The retail customer is also fairly sensitive to the cost of parts. These independent mechanics and do-ityourselfers often think they are being overcharged and will spend an inordinate amount of time telling
that to whoever is working the retail parts desk.
General Service Advertising
People find out about your service department in a number of ways word of mouth, driving by the
dealership, etc. Potential customers need to be aware of your services in order to use them, though, so
dont forget to improve the chances that theyll know about you by using general advertising. This may
be direct mail, radio, newspapers, and local TV spot advertising. The recommended level for
advertising is 2% of sales, but with a new dealership, you might consider investing a bit more.

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Promotions
You may choose among three standard promotional kit offerings. These are described below:
A Kit: Approximate 15% Discount on a pre-defined package of services.
Oil Change - Regular price $24.95 - with coupon $16.95
Scheduled Maintenance - 15% off parts and labor
Variable Discount on Vehicle Service
- $5 Off purchases from $15 to $50
- $10 Off purchases from $50 to $100
- $15 Off purchases of $100 or more
Front Brake Special - 15% Off parts and labor
B Kit: Approximate 10% Discount.
Oil Change - Regular price $24.95 - with coupon $19.95
Scheduled Maintenance - 10% off parts and labor
Major Maintenance Special - 10% off parts and labor
Four Wheel Alignment Special - Regular price $89.95 - with coupon $69.95
C Kit: 5% Discount.
Oil Change - Regular price $24.95 - with coupon $21.95
Variable Discount on Vehicle Service
- $3 Off purchases from $15 to $50
- $6 Off purchases from $50 to $100
- $10 Off purchases of $100 or more
Cooling System Check-up - Regular Price $26.95 - Free with coupon
Brake Inspection - Regular Price $26.95 - with coupon $7.95
Each of these kits may be mailed to three different target audiences those with new cars, middle-aged
cars, and older cars. Each of the model groups has approximately 3000 people in the local area. It is
expected that response rates will be higher for those with newer vehicles, but that those with older
vehicles will typically have higher repair bills once they get in the shop. It is also expected that "A" kits
will have the best response rate.

Customer Satisfaction
Of course, one of the best marketing tools is a satisfied customer. Satisfied customers come back to
your dealership instead of trying out an alternative service center. Satisfied customers spread goodwill
through word of mouth advertising. In this simulation, there are four measures related to service quality
that are measured through the Total Satisfaction Index (TSI), one of the primary indicators of the
success of your dealership.

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