Exploring Dealer and Service Retention Metrics

Unlock the secrets to mastering the automotive aftermarket with Nate Chenenko from Ducker Carlisle on this episode of Indicators! We promise you'll gain invaluable insights into the complex world of OEMs, tier suppliers, and service organizations as Nate, with his 12 years of experience, breaks down pricing studies, supply chain strategies, and growth planning. Learn how dealer relationships and strategic foresight are essential to anticipating industry trends and preparing for the next decade.

Discover how antitrust considerations are crucial in shaping strategies within automotive and heavy equipment industries. Nate illuminates how data transparency and benchmarking help clients navigate these waters, ensuring compliance while extracting valuable insights. 

Rethink traditional metrics with us as we dive into the complexities of measuring dealer and service retention. Nate will guide you through the intricacies of data segmentation by vehicle age and type, offering a more accurate picture of service retention. We also explore the shift towards aftermarket service providers and the evolving landscape of dealer service retention.

To learn more about the Auto Care Association visit autocare.org.

To learn more about our show and suggest future topics and guests, visit autocare.org/podcast

Transcript

Navigating Industry Trends and Data

Mike Chung 0:08

Welcome to Auto Care ON AIR , a candid podcast for a curious industry . I'm Mike Chung , Senior Director of Market Intelligence at the Auto Care Association , and this is Indicators , where we identify and explore data that will help you monitor and forecast industry performance . This includes global economic data , industry indicators and new data that will help you monitor and forecast industry performance . Hello everybody , I'm very happy to introduce my good friend and colleague , Nate Chenenko of Ducker Carlisle . So , Nate , welcome to the show .

Nate Chenenko 0:44

Thanks , Mike , happy to be here . Thanks for inviting me .

Nate Chenenko 0:53

Absolutely , so maybe tell us a little bit about your company and their involvement in the aftermarket . Sure , I work for a strategy consulting company called Ducker Carlisle . We're US based , with offices in basically every continent that you could think of . We do work primarily in the automotive aftermarket at least my group within the Ducker Carlisle Umbrella Organization . We do a lot of work with OEMs , plenty of work with tier one suppliers , service organizations , parts retailers , et cetera . I personally have been here for 12 years , spent the entirety of that 12 years in the automotive aftermarket , again with a primary focus on OEMs and their relationship to the aftermarket , and have not even come close to mastering the aftermarket . And it continues to engage me regularly . So I'm still here .

Mike Chung 1:45

Oh , that's great and it is a complex market and you mentioned your company being involved with OEMs . Do you also have clients in the I guess in the parts manufacturing distributor space , if I may ask ?

Nate Chenenko 1:58

Yep , we do . We work with pretty much the entire value chain , you might call it , ranging all the way from mostly tier one suppliers but occasionally tier two , tier three suppliers . We have a research arm as well that does research into some of the raw materials . Particularly like aluminum is a specialty of ours and that research gets consumed by a lot of tier suppliers . We do work with lightweighting . So that's all on the parts supply side , even like more of the raw materials side , and a lot of that research is consumed directly by , like I said , primarily tier one suppliers . And then our work with OEMs . They're buying from tier one suppliers , pricing those things , distributing those things . We do a lot of work with OEMs . They're buying from tier one suppliers , pricing those things , distributing those things . We do a lot of work with parts supply chain , parts pricing and then some growth strategy work for aftermarket companies as well .

Mike Chung 2:57

Oh , that's exciting and that gives a little bit more color into the strategy consulting . So some of the things I heard there are pricing studies , research from materials and how does that affect the cost of a good that an OEM might sell ? And you mentioned research . So it could be research of customers , it could be research with surveys with suppliers , things like that .

Nate Chenenko 3:20

Yeah . And then because we do quite a bit of work with OEMs and they yeah . And then because we do quite a bit of work with OEMs and they in many cases , especially in the American market , can't sell or don't sell directly to consumers . We also have to be very attuned to how all of that information plays with dealers . So the OEM sets a price , then the dealer can change that price . The OEM sets a strategy and that strategy is deeply reliant on the dealers buying in and helping execute that strategy . So that adds an additional layer of complexity . I think the complexity you said earlier that it's a very complex market . I think that complexity is what keeps me interested here .

Mike Chung 3:58

Yeah , and you said you've been there for 12 years . So tell me a little bit about the journey to Ducker Carlisle , what brought you there , and tell me a little bit about your background .

Nate Chenenko 4:08

I had the misfortune of graduating from university during the global financial crisis , so I ended up finding my way into strategy work in sort of a roundabout fashion , by starting with some government contract consulting work , which was the only thing that had any money back then . Luckily , it didn't take me too long to get into the private sector and ended up at Carlyle and Company , which later merged with Ducker to become Ducker Carlyle and hit the automotive aftermarket , like I said , in 2012 . Then worked on quite a bit of supply chain work related to aftermarket and after sales supply chains for OEMs and other companies , but also was exposed to a lot of our work in pricing . And then , over the years , as I've become more and more interested and started to read more and engage with content from a variety of sources like the Auto Care Association , among others , ended up leading a lot of our thought leadership activities over that period of time , and so now I spend about half of my time doing some more strategic research rather than trying to answer one specific question , more so trying to figure out hey , where is this industry going to be in 5 , 10 , 15 years ?

Nate Chenenko 5:30

What are the things we need to do now in order to prepare for that . How are the different stakeholders going to react to those things that we have to do ? How can we challenge some pre-existing maybe assumptions that exist ? And then also , one of my favorite topics is what is everybody paying attention to right now ? That is important . And what is everybody paying attention to right now ? That may not be as important as we think it is , and I'm often wrong on those things , but luckily I'm able to be right a little bit more than I'm wrong , so people are still interested in taking a look at what we create .

Mike Chung 6:09

Oh , that's exciting and I think I appreciate that description and the overview , because when we think about trend spotting , trend tracking , we have our finger on a number of different things right , and what I'm hearing is you're looking at the market , you're looking at qualitative indicators , you're probably looking at some quantitative metrics and indices as well as your kind of knowledge of being in the space . So I guess , with that in mind , what are some of the quantitative metrics that you and your team might look at to think about informing that five to 10 year horizon .

Nate Chenenko 6:45

Yeah , you really so accurately characterized that . It is a mix of qualitative and quantitative , and oftentimes we'll start digging into a quantitative metric after hearing somebody tell us that they have a qualitative problem . So I over the years , both through my personal life and professionally , have developed some friendly relationships with people that work at auto dealerships , for example , and I'll just give you a specific example Earlier this year , like in February or March , a local friend I'm from Rochester , new York , and a local friend of mine who works at a dealership said hey , we've been working like 60% time since the beginning of January . Things are super slow here and I'm not sure what's going on now . He works for one dealership out of the like 15,000 plus dealerships in the country . So his experience may not be representative at all , is not representative at all .

Nate Chenenko 7:44

But that little seed we plant that and then we can collect information from , especially from OEMs which , as I've mentioned , is the bulk of our clientele to understand whether that's a real thing or not . And so we use that to set up a . We do some monthly metrics gathering from OEMs . It's a product that we have called Metric Watch . It's available just to OEMs in the after sales space and we collect basic information from them , like sales information , and we communicate this information in generally an anonymized fashion so that we're above board on all regulations and other regulatory issues . But sales information lines , shipped fill rates from a supply chain perspective , what percentage of the parts are actually in stock at the time that the person orders it and then some warehouse metrics as well .

Nate Chenenko 8:44

And we can often validate the qualitative input that we're getting with the quantitative data and that , in this particular example , did not hold true .

Nate Chenenko 8:55

So if I had just listened to my friend who works at this local dealership , we would have had big , big concerns about the health of the service industry . Now it just so happened that his brand and two or three others were down on volume , but industry-wide there was not enough of a degradation in service volume for us to be worried about it . It was a bit slow , but it must have been slower locally than we realized , but it must have been slower locally than we realized . So having the data , or being able to get the data , is a great way to know whether what somebody is telling you is really representative of the entire market or there may be a local issue going on . So that's a fairly specific example , but there's a lot of different ways that we try to accomplish that across the various pieces of the industry we touch parts and service both ways that we try to accomplish that across the various pieces of the industry .

Mike Chung 9:48

We touch parts and service both . Yeah , let me dial into that a little bit more , because in this case you were able to conduct primary research to get data firsthand from the audience and the market of interest , and when you have a big pool of 15,000 plus dealerships , that's a pretty sizable data source right . And you mentioned something interesting in there and it's kind of came from that antitrust perspective of aggregation and anonymization . So just to expand on that a little bit , the first things that came to mind for me are one brand's data , like Toyota , for example . They may not be able to see Honda's , but you can kind of look at it in the aggregate and say , well , maybe there are cuts that are available to everybody , and it's foreign makes versus domestic makes or body styles , let's just say light trucks versus passenger cars . So are those some of the contours that go along with the legalities that you mentioned ?

Antitrust and Industry Data Analysis

Nate Chenenko 10:51

Yeah , we have a really good antitrust attorney that we work with and antitrust drives pretty much everything that we do . To be candid , we're working with , especially in the automotive industry , 18 different companies who are retailing a substantial volume of parts in the market and the ability to enter the market is incredibly small . The OEM market specifically , like the manufacturer market Tier ones I'll hold for a separate conversation . So antitrust is deeply important to us . We also work with heavy equipment companies and on that side of the business antitrust is even more of an issue because there are a lot of very , very small players but a few very large players who do control an even bigger portion of the market than the biggest of the auto manufacturers . So everything that we release to our clients that has data from more than one company we review from an antitrust perspective . A lot of information we are able to share attributed to the company that submits it to us , so something like warehouse quality , for example .

Nate Chenenko 12:07

I'm sure you've had an incident where you've ordered product A from an e-commerce vendor , let's say , and they ship you product B , or you order two of product A and they only ship you one , and that's frustrating as a customer and that happens in supply chains all the time happens in supply chains all the time . It's not an antitrust risk for anybody to know how everybody else's warehouse quality compares to one another . So we know and we can tell our clients you know company A , you did 500 errors per million lines shipped . That's good industry performance . Per million lines shipped , that's good industry performance , not best in class , but good Company B 3,000 . You should do these things that company A does to improve their performance .

Nate Chenenko 12:59

So we use that benchmark data and then we develop case studies around it and that's what allows us to that sort of feeds a lot of our strategy consulting work from especially the supply chain and service perspective , because it's all quantifiable and most of the information that we collect can be shared . That way , where we can't share any information , we don't do any price benchmarking and if we did we wouldn't be able to attribute that information to one another . But we don't collect any information on prices from our clients and anything related to sales has to be or is generally anonymized . But we're really careful about that because if we cause a problem with that , then not only does our entire business evaporate and we cease to exist , we've really hurt a lot of our clients . So in many cases we're overcautious and we probably could push the limits a little bit more . It's just not a smart decision for the long run for us .

Mike Chung 13:51

Oh , that's , that's really helpful to understand . Thanks , and just kind of one last question about the , the , the study with the , the individual you know in the Rochester area , was that like a one-time study or was that did that get established into like a recurring study ?

Nate Chenenko 14:07

So the after effect of that our monthly metric watch product has been recurring . So every month we collect basic supply chain metrics from a variety of OEMs and could certainly do it for more companies if there was broader interest and we collect all of that information and it's only the core , most important pieces that really fluctuate quite a bit month over month . So something like inventory levels , which again are not at dollar cost level , they're at like a months of supplier and inventory turns level , some of the common inventory management metrics that the supply chain professionals use , and so we compare those every month and then once a month there's a 45 minute webinar that I lead . Hey , you're up , can you explain why ? This has been really interesting also because , like , seeing the data is one thing , but of course you see somebody , you see an OEMs number change month over month and you want to know why , and so we always make sure to combine our industry benchmark work and our data collection work with a at least digital meeting to discuss the results and understand why things are happening the way that they were happening .

Nate Chenenko 15:22

So , mike , you probably recall last summer there were quite a few , or late last summer I guess August , september there were multiple OEMs had strikes across the production environment and some of those companies saw those strikes echo into the after-sales environment as well and they affected their aftermarket warehouses and their aftermarket distribution . So of course that has a huge impact on the metrics that we see your lines shipped and the dollars that you ship drop precipitously . And so we saw that in the data , which was not a surprise . Everybody knew why , but it was really interesting to see the recovery . What recovered first ? Which warehouses ? How did it come back ? How did inventory follow on ? How was warehouse performance affected when there were some temp staff , some headquarters staff , some full-time staff doing the work that typically union staff would have done during that time ?

Nate Chenenko 16:25

So it's an excellent way for us to understand what's going on . And then we've developed good relationships around the industry , so the companies that participate in this research are quite willing to talk to one another about what's going on . And then again back to your antitrust point . We facilitate all of those discussions and we've got really strict rules about what can and can't be discussed , and people understand the rules . We rarely have an issue , but if we do ever stray close to the boundaries one of my teammates or myself I facilitate a lot of them , but not all of them . We just make sure to put up an appropriate boundary and push things back into the safe territory so we don't have any issues there . So it's a great learning opportunity and it allows us to understand why the numbers are moving the way that they're moving , because , like , just a number often just spawns a lot of very good questions and that allows us to get the answers often just spawns a lot of very good questions and that allows us to get the answers Right .

Mike Chung 17:27

And what I'm hearing is just that having the discussion allows for that additional color and kind of validation , as well as to tell me more from people in the industry , and I don't know if this will come off funny , but I thought about the example of the fill rates when you had the managerial staff going in and trying to load things and I can see that perhaps being some fun between the regular labor staff and the managerial staff saying hey yeah fill rates , leave it to us .

Nate Chenenko 17:54

Exactly yeah . The numbers are a lot better when the union staff come to do it .

Mike Chung 18:02

They're there for a reason , yeah .

Nate Chenenko 18:04

Partly because they do it all day , every day , and partly because there are more of them , and but yes , I that that definitely is one of the things that we take a look at , and also the whole thing . It's trust building . If somebody just gives you a number and you don't know them , you're inclined to disbelieve the number . And when you know the person and they've explained to you why the number looks the way that it looks , and you believe them . And you've seen many , many other numbers that they've submitted , all of which are right and you believe . The whole thing builds trust for the entire endeavor , which is helpful . And then we also get very valuable data to use to work with everybody to improve their businesses as well . So it's foundational for our approach .

Mike Chung 18:56

Yeah , thanks for

Measuring Dealer Retention in Auto Service

Mike Chung 18:57

sharing that . And one last question before I pivot over to the dealer retention rate . And I feel like this could be a nice segue , because when I think about the type of study where it's a monthly metric , I think about the data you're looking for , but also the ease of people on the receiving end to provide that data . Say for that monthly metric that you're that data . Say for that monthly metric that you're referring to , how is it for the people taking the survey I would imagine they're kind of industry standards . There's some data points that they should be able to access fairly easily and I guess a subset of that question could be . If it turns out it's a difficult question to answer . How does that affect you from a data collector standpoint ? Do you alter the question ? Do you go to something else ?

Nate Chenenko 19:43

Yeah , I'm going to try not to give you too long of an answer because I could talk about this all day and I've been doing this for a while . But benchmarking is . The foundation of benchmarking are good data definitions . So if I ask you something simple like how tall are you definitions ? So if I ask you something simple like how tall are you , you could answer that question because society has defined what is a foot , what is an inch , what is a meter , all of the basic building blocks for measuring things .

Nate Chenenko 20:11

But the supply chain is very complicated and the service business , which we'll get to in a moment when we start talking about retention , as you mentioned , is even more complicated . So trying to create a metric without a standard definition is almost worse than useless . Like if I simply ask somebody what's your fill rate , that is worse than not knowing , in my opinion , because one company may say 88 and another company may say 96 , and they could both be right . But they're talking about two different things . The metaphor that everybody uses , or the idiom , I suppose , because it's so popular , is apples to oranges comparisons , and it's really our job to make sure that that doesn't happen . So long before I joined the company or got into this industry . Other smarter people created a set of industry standard definitions especially for these core metrics that are , like the most important ones to measure the supply chain and measure the service business which we'll get to , and those definitions , because we work with so many companies around the industry , have become the industry standard . So we still , of course , have a detailed , like . When I say facing fill , the 10 people on the phone know what that means . Case of FacingFill like 33 years ago somebody wrote a 90 word definition that everybody has just intuited and put into their systems and that's the way that the systems generate this information . So in many cases gathering the data now is easy because they push a button and then it spits out these 10 numbers and then they just put them into our system . So it takes a few minutes when we try to create a new definition .

Nate Chenenko 22:00

Like , for example , we've launched an electric vehicle after sales benchmark . Because electric vehicles are . They consume parts differently , they consume service differently , they require a different set of capabilities . It's hard to warehouse the batteries , it's hard to train dealers on how to service those vehicles . So we've got a new benchmark which requires an adapted set of definitions and the definition of even what makes up an electric vehicle is like 80 words , because some people call an electric vehicle like a plug-in hybrid .

Nate Chenenko 22:31

They may consider an electric vehicle or even a regular hybrid like a not plug-in hybrid , for example a traditional Prius . So setting those definitions is tricky and the earlier we are in the process , the harder it is to standardize on those definitions . But as time goes on , the definition generally expands to clarify some inconsistencies that may have happened in year one or year two and , with the benefit of having access to historical data , we can better understand whether companies are accurately interpreting the definition . So we do a big validation process whenever we collect this information to make sure it's accurate , because if we're communicating benchmark information that's not truly comparable , again I consider that worse than not having any information .

Mike Chung 23:22

Right , it can create confusion because the 88 to 96, . It could be something like is that units , is that percent ? Is that overall for a particular category ? What's the time span we're looking at ? So what I'm hearing is definitions are critical , and I would imagine just going to the same person or making sure that he or she can loop in the appropriate person . Those are some of the foundations for having consistent , reliable data .

Nate Chenenko 23:47

Yes , yeah , and we also keep . We've had relationships for a long time as well . But we take notes too . So when a company switches over , you know people rotate around companies all the time . Either they have some positive attrition and they get promoted , or they go to a different job within the company , or maybe they leave and go to a different company , and so we take notes as well for each of the participants . In many cases we'll know hey , you get this information from this system and I can't tell you exactly what buttons to push , but I can tell you what system it comes from . We've got the historical information , and if it's somebody new to the role , we often help them out early on in the process , which helps our accuracy , and then it's helpful . It saves them a lot of time and stress as well .

Mark Bogdansky 24:35

Hi , I'm Mark Bogdanski , vice President of Trade Shows and Community Engagement at the Auto Care Association , and I'm thrilled to invite you to join me in Las Vegas at Apex , the aftermarket's premiere show , this November 5th to the 7th . I guarantee you will have an amazing week full of unmatched networking opportunities , access to unparalleled educational sessions , including our enhanced EV stage , our new ADAS and sustainability stages , and our aftermarket shop training . You'll also see a show floor with over 2,700 companies featuring the latest products , services and experiences . This truly is the aftermarket's homecoming and you do not want to miss it . Register now at apexshow . com and I hope to see you there .

Mike Chung 25:21

For the benefit of our listeners , can you give us just a little thumbnail on what the dealer retention rate is , a little bit about its history and what it means for the industry ? Nate .

Nate Chenenko 25:31

Yeah .

Nate Chenenko 25:31

So when assessing a market and in this case we're talking about the service market I've talked quite a lot about supply chain metrics , but we're going to pivot over to talk about service and , again , for purposes of this discussion , we'll focus specifically on service that's performed in the dealer service lane , or in the dealer channel , as I will refer to it .

Nate Chenenko 25:54

So this is taking your car to a Ford dealer or Toyota dealer , as many of your listeners probably do , and whenever we assess a market like the dealer service market , I really care about two things .

Nate Chenenko 26:09

Primarily , I want to know how big is the market , which the Auto Care Factbook does a very good job of communicating , and then I also want to know what is my share of the market , what is the company's share of the market and the Auto Care Factbook does a good job of communicating .

Nate Chenenko 26:21

And then I also want to know what is my share of the market , what is the company's share of the market and the Auto Care Factbook does a good job of communicating that as well , at a very , very high level . But each individual company that we work with also wants to know what their share of the market is , and it is surprisingly hard to calculate , and it is surprisingly hard to calculate share of a service market because it is hard to get all of the data , particularly because a lot of this data historically lived with dealers and was not easily accessible to the OEM up until like the mid 2000s so again prior to my joining the company , we created a metric called dealer service retention and the definition which we talked about is deeply important is the percentage of customers who have come to the dealer for customer pay service at least once in a calendar year .

Nate Chenenko 27:17

So not warranty service not warranty service , and the definition is much longer than that In practice . It excludes no cost repair orders . It excludes internal repair orders , like a dealer working on VIN 1 , 2 , 3 , 4 , 5 , 6 to refurb it for the used car sales . Those are excluded . It has to be like a quote , unquote real customer who owns a real vehicle and goes to the dealer for service . We also exclude fleet vehicles and fleet service from that metric .

Nate Chenenko 27:51

So sounds easy , right , just go ask all the dealers how many customers came back for customer pay service . But you have to define it so precisely . So I talked about what we exclude , but we will include somebody who goes once . That counts . We'll also include somebody who goes five times . That counts too . And so that's nice because that gives you the numerator , like I might know .

Nate Chenenko 28:17

Okay , I had exactly 1 million , just to make the numbers easy .

Nate Chenenko 28:19

I had exactly 1 million , just to make the numbers easy .

Nate Chenenko 28:20

I had exactly 1 million customers come back to me in the calendar year for service .

Nate Chenenko 28:27

Well , that's nice to know and that's great if you have a million customers on the road , but it's a lot less good if you're like General Motors and you've got tens of millions of customers on the road , and so we need to divide that number by something and we divide it by the units in operation which we buy from the vehicle registration data that I suspect a excuse me who've returned to a dealer for customer pay service at least once in the calendar year , and divide that by the total number of customers or the total number of vehicles on the road for that brand , and that gives us the dealer service retention metric .

Nate Chenenko 29:19

And there's a lot of reasons that metric is not great , which I suspect we will get to . There's a lot of reasons that metric is not great , which I suspect we will get to , but that is better than what we , the industry , knew prior to 2008 , when we created the metric , which was just a top line number of customers who had returned , and a lot of companies were calculating their own version of service retention but were unable to compare to one another accurately .

Mike Chung 29:45

Apples and oranges phenomenon .

Nate Chenenko 29:47

Exactly .

Mike Chung 29:47

Referring to earlier . So if I think about it from a dealer perspective , an OEM might say nationwide the numerator , the denominator you described as a , perhaps a benchmark , and then applying that across the country to say , okay , dealer X , dealer Y , dealer 243 in California , dealer 596 in Des Moines , iowa . This is sort of the metric and we're going to set the bar here and I would imagine , with the data sources you're referring to , you're able to delineate and drill down to the state , the local level . I would think .

Nate Chenenko 30:27

Yeah , the calculation methodology is used by most of the OEMs as well . So when they calculate their internal like for all of their dealerships , they do exactly what you were just mentioning and I just had a conversation with an OEM about this on Friday where they calculate that nationwide number as you were mentioning . Then they calculate a statewide number , but when you get down to the metro area , it can be tricky because there could be one dealer in the metro area or there could be four dealers in the metro area , depending on the size . There could be 10 in really big cities or more . And so there's , even when you get down to that , like the more granularity you want to go into , the more complexity it adds .

Nate Chenenko 31:10

And that's again , if the theme of the conversation is complexity , like that's what keeps us coming back and trying to build more detail in without creating too much complexity so that you're giving somebody 200 numbers and they look at none of them . One number is often not enough , but 200 numbers is too many and we have to find the right balance of how many metrics can people actually keep in their heads and strive for versus , which may not be perfectly comprehensive . They are accurate , but they may not be comprehensive , and so that drives a lot of what we do , as well as trying to say , okay , here's the best way we can do this to balance the amount of different data points and metrics that we have to communicate with our ability to drive action , because ultimately , the point here is to enable people to change their behavior , to sell more , do more , provide better customer service , provide a better value and then ultimately increase their revenues and profits . It's not just to give people a giant list of numbers . Sure .

Mike Chung 32:18

And so , like the complexities that you mentioned in terms of whether it's a data gap or availability of information going to that dealer retention rate , what are some of the things that you and your team have sort of climbed up the mountain towards ?

Nate Chenenko 32:38

So there's a problem with dealer service retention , which is probably fairly obvious .

Understanding Market Share and Service Retention

Nate Chenenko 32:46

When I talked about when I introduced the concept , I talked about market size , which is always in dollars , and then I talked about market share , which is a percentage . But typically when people think about market share , they think about market share as a percentage of the dollars , not as a percentage of the people that go somewhere . And because of the complexity of the industry , the best the industry has been able to do until fairly recently has been the service retention metric that I've described , the percentage of people that go to a dealer . The problem with that metric is that I maybe I'm a personally good example of this . I went to a dealer for customer pay service last year and I also went to an aftermarket like a chain shop by my house because I needed a state inspection , which counts as customer pay work , and I also went to the advanced auto parts down the street from where I live and I bought wiper blades and I bought washer fluid and I bought a cabin air filter for my other car . But according to our and the industry's service retention metric , I still count as retained , but I would argue I'm not fully retained because I went elsewhere . This is sort of like McDonald's saying Mike bought a cheeseburger from us on January 1st , therefore he's our customer . Well , you might've bought one , but perhaps you go to Wendy's like every Thursday , and so you're retained by McDonald's , but McDonald's might have 1% of the amount of money that you spend . Sure , that's the biggest problem with the service retention metric . There are some secondary issues . Service retention is still very informative . It's relatively easy to calculate and it is certainly better than what the industry had before . Some of the other problems with service retention are and these are solvable , and I'll explain how we've solved them .

Nate Chenenko 34:50

Service retention differs a great deal based on the age of the vehicle . So a customer of a brand new let's say , one-year-old , two-year-old premium vehicle BMW , lexus , mercedes , et cetera about 80% of them , 85% of them return to the dealer for service at least once a year . By the time you're looking at a 10-year-old non-premium vehicle Chevy , hyundai , toyota , et cetera it's more like 20% . So this is where we can go all the way back to what you asked earlier , where we segment the industry . So we'll take a look at premium brands . There's zero to three year retention , or zero to four , zero to seven year retention , seven to 10 . We break those age categories down pretty narrowly and we can compare across those age categories and then also we look at the slope of that line . So you can envision that line goes all the way from starting at 85% all the way down to maybe 30% for a premium brand , 20% for a non-premium brand . The slope of that line really matters because that shows how good an OEM and its dealers are at retaining customers as the vehicle ages .

Nate Chenenko 36:04

And as the vehicle ages the ownership transitions . The car leaves lease after 36 months . Generally that may be 50 , 55 , 60% of the vehicles on the road . For a premium brand it may change hands again year seven or year eight . Now you're into a third owner . You've got less connection to them . It's probably not going back to the original dealer who retailed the vehicle when it was new . So it gets incredibly challenging for dealers to retain those customers as time goes on . And so we can address that . We can solve that problem by looking at specific narrow age segments . So that's a solvable problem . But that does not address the issue of you buying one cheeseburger at McDonald's and then 99 of them at Wendy's and then McDonald's being happy that you're a customer . So the industry needs to gain some sophistication in that area .

Mike Chung 36:57

Right , and I think from a quote unquote share of wallet perspective too right . Let's say I have a seven-year-old vehicle . What is my total spend on that vehicle ?

Mike Chung 37:08

You , have some great examples of the local parts shop , the inspection station , the dealership , as well as maybe you purchase something on an e-commerce outlet and you do it yourself . So I think , looking out in terms of all the data that's available , what's in the realm of reasonable and how much can we get for a particular vehicle and , kind of like you said , what data makes sense for your purchasing audience , if you will right , because I think about the number of people , the number of vehicles , what percentage of those vehicles are going back and , to the extent that you're able to segment it , like you mentioned , by age of vehicle , type of vehicle , whether premium or non-premium , and it could be interesting too Are you able to do any sort of ? Here is an approximation of the dollars share that the dealer is getting for spend on that car .

Nate Chenenko 38:11

Yeah , we finally started doing that this year at an industry aggregated basis , so we're not yet able to do it in as much accuracy as I'm comfortable with on the brand level for individual OEMs , but at the industry level we were able to pull it together this year . So we took the service retention data we've been talking about and just as a point of reference . If you exclude all of the vehicle age segments that we're looking at here , dealer service retention is about 50% , so about half of vehicles go to a dealer for customer pay work at least once a year . That seems really good , but that doesn't again communicate any of the dollars and we can't use that information to get a share of wallet . So I finally got a little bit fed up with being the data arbiter for the industry and not actually having a good answer to this question , and we bought a data set that allowed us to calculate with a reasonable degree of accuracy it is definitely not perfect and probably will never be perfect the share of wallet for dealers . So their service retention is 50% . That sounds quite good . Their share of wallet is only 43% , which is still good , but it's not 50% . So customers that dealers perceive as loyal must be going somewhere else for service . And that's really where you see , in particular , the independent aftermarket . We call them independent repair facilities or IRFs , and they have also 43% share of wallet . So dealers with all of the infrastructure , all of the branding , all of the built-in customer base .

Nate Chenenko 40:06

I bought a car from a dealer . The easiest thing for me to do , as the customer , should be to go back to that dealer . I know they exist , I know where they are , I'm in the CRM system . They have all of my information . I have some degree of trust with them . Presumably In many cases that should be good . Some cases , of course , it's not . That should be the default and it is the default . But what we find is that the independent aftermarket with low to no marketing budget , minimal online booking technology , no business development center to answer the phone when people call , unlikely to have Saturday hours , don't sell genuine parts , don't have loaner vehicles , don't offer Uber or Lyft as a standard part of the service experience to their customers , don't serve coffee in the waiting room , may not even have a waiting room . They're getting 43% of the dollars in the market and that's a pretty striking difference when you look at the costs that dealers put into their service business versus the costs that the independent aftermarket puts into their service business .

Mike Chung 41:18

Right , yeah , really fascinating and just a testament to the strength of the independent repair facilities in terms of the ability to retain customers as well as presumably offer a compelling value proposition . And I think we've got about five minutes left here , and one of the things that I'm kind of thinking about here , too , is you mentioned purchasing a new data set . Tell us a little bit about what that looks like from a process . What types of things are you looking at from a data provider when you make that type of decision ?

Nate Chenenko 41:54

Yeah , I'll give my personal take here and then I'll layer on some other . Of course we have plenty of company policies as well that I'll try to skip

Data Granularity and Service Retention

Nate Chenenko 42:03

past . That's the more boring piece . When we're buying data , I want the most granular information that I can possibly get my hands on . The more aggregation that's performed in whatever I'm buying , the less useful it is for me . So what we bought in this case was a giant batch of credit card data with 28.7 billion transaction records in it . From that was over the course of three years , so it's not quite that many on an annual basis .

Nate Chenenko 42:34

And there are companies who would have sold us the answer to the question , which is what is the share of wallet for dealers for ? For the independent aftermarket , for chains in the aftermarket , for parts retailers in the aftermarket . But I want the individual pieces because I want to know and have 100% trust in what I've got and I want to be able to understand the limitations of what we have as well , because in order to provide a service that I feel good about that I think our clients can really trust , we need to lean into the problems with the methodology that we have , and if I don't have all the granularity , then I can't understand the problems and then I can't communicate the problems and that puts me in a very awkward could put me , if we let this happen , in a very awkward position where somebody asks a question and I don't have the answer . That's like the worst case scenario for me . I'm fine to say I don't know , let me find out and get back to you . But if my answer is , if I'm saying something and somebody can give me a compelling argument why I'm wrong and I can't at least address that argument , that's a huge failure for our business . It's a trust killer . I can't imagine trying to run a business that way , especially a consulting business that way .

Nate Chenenko 44:06

I also want to buy that data from somebody who has a similar attitude to my attitude to consuming the data . I want somebody who's going to tell me what I can do and also what I can't do . It's sort of like a good attorney . A bad attorney will tell you what you can't do . A good attorney will tell you what you can't do , but then also what you can do , and I think the opposite may be true for data that we buy . I want to know both of those things . What are the limitations ? And for the credit card data specifically , the big limitation is that I don't get to see any PII , any of the names of the people whose credit cards it is , and I also don't get to see what type of vehicle they own . And I want to buy from somebody who's going to own that and make that very clear to me early on in the process .

Mike Chung 44:49

That's really helpful and , I think , going along with some of the other things we talked about with regard to what are the limitations of my data , what questions can I answer and can't I answer . Because if I buy something from xyzcom and install it myself , you don't necessarily see in that credit card transaction my VIN number , and there's only so much you can conclude or infer from my transaction and how it might apply to a particular brand , make , year , etc . Cetera . And perhaps similarly , if I take my vehicle to an independent repair facility , that VIN number may or may not be included in the credit card data . So being able for you as a collector and analyzer of data , analyst of data , to be able to say what can and can't we answer , so really appreciate those perspectives .

Nate Chenenko 45:43

Yeah , that's critical for us just knowing what and also being able to say this is what we can't do , because otherwise people have doubts and then they are not interested in working with us and I can't argue with them . I wouldn't want to work with us either if we weren't upfront about it . Sure , sure .

Mike Chung 46:00

Yeah , so I guess one last topical question here is , in the next , say , five , ten years , the dealer service retention . Do you see any significant changes in terms of being able to be able to say now we can add this type of analysis because XYZ data is available , or we're able to incorporate a new analytical methodology to tell more ?

Nate Chenenko 46:27

I'll answer this question . I'll try to touch on the data aspect and then the non-data aspect . Dealer service retention has been slipping very slowly for like a decade plus , and it moves slowly because the units in operation , like the body of cars on the road , changes very slowly , especially as people keep their cars for longer . So I'm 40% concerned with getting better data and understanding that more . I'm 60% concerned with understanding exactly why that's happening and trying to help all of our clients improve their share of wallet . So from a data standpoint , I think we will get better at calculating share of wallet . The more data sources we get , the better we can triangulate on this information . At the brand level , we can get a lot of data on specific service points or service providers and see what they're doing well and what they may not be doing well . We can see in that data whether a tire chain , for example , is growing more rapidly than a dealer group . We can see whether a parts retailer is growing faster than another parts retailer , and we can get that information before they release their quarterly results . Now we're not investors , we don't invest on that information , but it's nice to have it early because it gives us an indication of where things are going At an aggregate level , like beyond the data .

Nate Chenenko 47:58

Dealers are increasing their prices at a higher rate than the aftermarket . Either chains or independent shops are increasing their prices and the dealers start out at a higher rate than the aftermarket . Either chains or independent shops are increasing their prices and the dealers start out at a higher point . So increasing a $500 price tag by 10% is a lot more than increasing a $300 price tag by 5% , and the wider that price gap gets , the harder it's going to be for dealers to keep their retention high and keep their share of wallet high . They are trending towards getting an ever-increasing amount of their revenue from an ever-shrinking population of people , and that is for a non-luxury business . We're not talking about Louis Vuitton . We're not talking about Hermes here , where that's a viable strategy . We're not talking about Louis Vuitton . We're not talking about Hermes here , where that's a viable strategy . We're talking about a mass market business . That's a risky strategy that I think has to reverse course at some point . Otherwise service retention and share of wallet for dealers will continue to fall .

Mike Chung 48:57

I'd love to keep the conversation going , perhaps in a future episode more on credit card data and considerations there , as well as new trends in customer behavior and provider offerings , but I'll just end with this last non-topical related question . You mentioned having family get-togethers recently . Let's say you have another get-together this weekend . It's at your house . You and your wife are serving food . What kind of foods might you prepare for the gathering ?

Weekend Plans and Food Preferences

Nate Chenenko 49:38

Mike , I am a very simple person and I would happily eat the same food every day for the rest of my life , if I'm one of those people . But we are going to my brother-in-law's house this weekend and I am certain that they live in Beverly , massachusetts , like up on the North shore , and I am certain that he will be grilling scallops for us , which I love , so that is on the menu for this weekend and I am pretty excited about it . Fresh out of the ocean , that sounds like a treat .

Mike Chung 50:01

Thanks for tuning in to another episode of Auto Care On Air . Make sure to subscribe to our podcast so that you never miss an episode . Don't forget to leave us a rating and review . It helps others discover our show . Auto Care On Air is proud to be a production of the Auto Care Association , dedicated to advancing the auto care industry and supporting professionals like you . To learn more about the association and its initiatives , visit autocareorg .