The Recall Conundrum
James Jackson doesn’t care for hyperbole. Anecdotes don’t help him much, either. When he needs an answer, he wants facts—he looks at the numbers.
Let’s start with the numbers then: A record 51.25 million vehicles were recalled by auto manufacturers in 2015, according to the National Highway Traffic Safety Administration’s data. That comes just one year after 2014 saw a then-record 50.98 million vehicles recalled. And the pace didn’t slow in 2016, either.
And as far as hyperbole and anecdotes?
“I’ve heard for years, a really long time, that recalls were going to become less and less of our work mix,” says Jackson, director of the $9 million-per-year Napleton Nortlake Auto Park Chrysler Dodge Jeep Ram service department in Lake Park, Fla. “Better cars meant fewer recalls. That’s what everyone said. They said to go away from recall work, because it’d dry up. That obviously hasn’t happened.”
In fact, many see recall work as one of the largest bottlenecks hindering dealership service centers nationwide, longtime industry consultant Brett Coker says. Recall work hasn’t slowed and likely won’t any time in the near future (we’ll get to the why a little later), and Coker says it often harms a shop’s ability to churn out more profitable, customer-pay jobs; recalls are a proficiency killer.
But they don’t have to be, both Jackson and Coker say.
“A lot of people complain about recalls,” Jackson says, “but in my book, recalls equal dollar bills.”
Again, as Jackson prefers, let’s look at the numbers: At his Napleton facility, 37 percent of Jackson’s roughly 2,100 repair orders per month come from recall work (customer pay is roughly 40 percent with internal dealership work accounting for the final 25 percent). And on those recall jobs, Napleton averages a 65 percent gross profit on parts and labor—that’s compared to roughly 58 percent on customer-pay work, which includes the shop’s two express lanes.
How does he do it? It’s simple: Amid all the operational aspects controlled or affected by outside sources—parts prices and margins, work mix, etc.—Jackson focuses on labor, on his team, on what he refers to as the most valuable resource of any fixed operations department. Jackson’s unique, team-based operational system has allowed the department to thrive. If you want to turn recall work into a true profit center, Jackson says, it’s really that simple.
From Problem to Innovation
Jackson has worked in dealership service departments since he was 16, full-time since he was 18. He’s served in virtually every position, from a porter to a service advisor to a fixed operations director. He’s been at the Napleton facility for nearly two years, and upon his arrival, he brought with him 37 years of experience in managing workflow and leading staff.
That last part only came with time.
“The first service department I was ever in charge of, it was a disaster,” he says with a laugh. “I expected everyone to just think like me and [be motivated] the same way. It doesn’t work like that. You need to find the right ways to connect with them and get them to push themselves.”
That’s where Jackson’s team structure for his technicians originated.
Current trends also played a role. According to a study from Carlisle & Co., the average automotive technician is in his or her mid-40s. Roughly 47 percent of all techs, according to a study by economic and labor research firm Emsi, are 45 or older. Meanwhile, there are fewer young techs entering the field than ever before (less than 9 percent of all technicians in employment are 24 or younger, according to Emsi).
To account for—or simply prevent—the industry-wide trend of mass turnover caused by shifting demographics, Jackson needed to shift the way he organized staff. He had to account for Chrysler’s stringent requirements on matching technicians to their proper work levels (e.g., a Level 3 job must be performed by a Level 3 tech) and that the increasing sophistication of vehicles has made diagnosing a vehicle problem more difficult; both issues can hurt throughput and squeeze margins.
“Team systems have been around forever,” he says. “I didn’t invent some grand scheme. I just tried to find the way that would work best under our circumstances. This is what I came up with, and I think the numbers speak for themselves.”
Success in a service department hinges on the proper diagnosis of vehicles, Jackson says. “It’s the heart of this business,” and it’s the key to improving efficiency shop-wide.
“That’s where everything starts, and most people look at that and base their [team structure] off that,” he says. "Everyone wants all Level 3 guys who can figure out those issues with ease, but from my experience, we see that over 50 percent of our work here—sometimes far more—is Level 1 work. You can't afford to have Level 3 guys doing Level 1 work if you want to be [profitable]."
Jackson also felt that the volume of his facility was too large to simply assign specific techs to do nothing but diagnose vehicles. Instead, he divided 12 of his technicians into teams, each with a variety of skill levels to properly diagnose, assign and complete work.
Napleton has four, three-technician teams, made up of a Level 3, Level 2 and Level 1 tech, each with his or her own bay . (Note: In all, the facility employs 28 techs; the other 16 are split between the express lane, the transmission bays, internal used-car work and pre-delivery inspections (PDI).) The Level 3 technician for each team is designated as the lead tech , the point person for all ROs, and Jackson says that tech is “100 percent responsible for every car that comes to that team.”
Each team is paid based on flagged hours, split based on position: The Level 3 tech gets 57 percent of the pay, 26 percent goes to the Level 2 tech, and 17 percent goes to the Level 1 tech. Raises, Jackson says, come through advancing through the stages (i.e., Level 1 to Level 2 to Level 3) and through increased throughput.
“It gives them incentive to keep training and working toward a goal, and it offers a career path,” he says. “And the opportunity to earn is great as they progress. They control it through their own work.”
A risk of a team-based system is that it could create a schism within the shop, pitting team against team. Jackson doesn’t want to have four “mini shops” in his facility, and says the simplest way to avoid that is through open, transparent communication. He holds team meetings every Tuesday—one with all of his technicians, and a separate one with all of his service advisors.
“This gets everyone on the same page, and we work on things together,” he says. “We want teams to learn from each other and interact for improvement. We end every meeting with the idea, ‘What can we do today to be better tomorrow?’”
The success of each technician team at Napleton CDJR is dependent on its lead tech, Jackson says. The leader sets the tone, the pace, the attitude and the overall work level of each team.
“It’s critical to have the right person,” Jackson says.
When appointing lead techs, Jackson says that he wants someone who is goal-oriented, passionate, and aggressive in hitting benchmarks. All of his lead techs must have a Level 3 designation, so skill or experience is often already predetermined. Personality and attitude are the deciding factors.
When a service advisor writes up an RO, it is assigned to a team based on capacity and the current schedule. Each RO goes directly to the lead tech first. He or she then diagnoses the vehicle and assigns it to the proper technician within that team, and the Level 3 tech then initiates the parts order. After the work is completed, the vehicle goes back to the Level 3 tech to perform an evaluation and a final quality-control check.
The right people in the right places—Jackson says that’s the key to increasing throughput. Because of his team setup, the right tech is performing the right work, he says, and it helps each team achieve numbers that his techs previously didn’t think were possible.
“The key to profitability, especially on recall work, is to not have your Level 3 guys performing work they aren’t required to,” he says. “If everyone is working at their level, and no one is bogged down by lesser work, they’re going to be efficient and your margins will be better.”
In giving an example, Jackson offers October’s weekly numbers for one of his top teams, which he says represents the typical performance for those techs. In all, the team averaged 215.7 flagged hours per week, or 71.9 hours each, at roughly $23.33 per flagged hour. For each tech, the payouts broke down as follows: the Level 1 tech earned $733.99 ($10.19 per hour; 17 percent of the hours); the Level 2 tech earned $1,100.99 ($15.31 per hour; 26 percent); and the Level 3 tech earned $2,446.65 ($34.03 per hour; 57 percent).
It’s a high pay out, and Jackson loves it, because as the team performs at an efficient level, the shop still earns a high margin on that labor. Jackson might pay out $23.33 per flagged hour, but the actual effective labor rate on that work was $19.85 per hour.
Overall, Napleton’s gross profit on labor approaches 80 percent (it is often at 81 percent for customer-pay work), which is among the highest of the dealership group’s 38 facilities.
“The system pays if everything clicks,” Jackson says, also noting that performance can vary from team to team, and the team mentioned above more than doubled the numbers of the shop’s lowest performers in October.
An Adaptable Solution
After a two-year stretch that included a number of alarming, high-profile recall cases (Takata airbags, GM’s ignition switches, and VW’s emissions scandal, are a few examples), the NHTSA announced reform to its recall process in early 2016. The organization signed an agreement to partner with 18 auto manufacturers to share data that can lead to the discovery of safety concerns. The new process has been compared to the Federal Aviation Administration’s safety management system.
The goal is to find and fix “defects before someone gets hurt, rather than just punishing manufacturers after the damage is done,” U.S. Transportation Secretary Anthony Foxx said at the time.
Does that mean more record recalls are on the horizon? Jackson doesn’t want to speculate. He says he’ll wait and watch the numbers. He knows that his team structure can be adapted if needed, and it already performs incredibly well for customer-pay work (remember that 81 percent GP on labor?).
“All of this is an everyday battle,” he says. “You monitor it, you watch it closely, you work closely with your team, and you make adjustments. It’s about getting better each day and growing. Whatever happens, find a solution that fits.”
NAPLETON NORTHLAKE AUTO PARK CHRYSLER DODGE JEEP RAM Department: Service Director: James Jackson Shop Size: 20,000 square feet Number of bays: 28 Number of lifts: 28 Repair Orders per Month: 2,090 Annual Sales: $9 million