10/10/2010 08:49 pm ET | Updated May 25, 2011

Auto Repairs and the Financial Crisis

The other day my vehicle was making a rubbing/grinding noise that was noticeable on low-speed turns. From prior experience, I knew it was probably wheel bearings, power steering, cv boots, axles or some such. As you can tell, I did not know much, just what I had paid for in previous experiences with similar symptoms.

I received a recommendation for a local auto service place and decided to try them out. After leaving the car with them a few hours, the actual mechanic called me back. Note, it was not a "service advisor" or the intake person. The mechanic told me that the power steering fluid was a little low but he could not detect a leak. He said he topped off the fluid and suggested we just drive the car awhile and see if there is some very slow leak that is undetectable. He also told me that the last person to change the power steering fluid might have just left it a little low. When he paused, my response was "that's it?"  Yes. I asked if he inspected the front end and he said that he had and there was a cracked CV boot but no wear as yet. He did not recommend changing it because I could drive it awhile and repair the whole thing later, including the axle, for about the same money.

Then he put the business owner on and I asked him how much it would be. "Nothing", he said. No service fee, no charge for time, no charge for fluid. I told him he had a customer for life.

The business itself appeared to be quite successful. While not on a main street, there were two nice new buildings and plenty of apparent work, which could only come from word of mouth. This place had zero street visibility.

As I was pondering this later, it occurred to me that the staff must not be under "metrics" and "goals". Rather, they had an innate desire to provide a quality customer experience and to do the right thing for the client. They had a faith that if they did so, they would have a loyal customer that would come back to them when a real repair needed to be done. Do you know what? They are right. I will only go to a new car dealership in the future for a complex problem that only they have the diagnostics to fix, after these guys tell me then cannot handle it. And I trust that they will tell me that if it is the case.

I did a quick internet search and quickly found a site that discussed metrics for Service Advisors. The terminology that began to jump out at me reminds me of that we find at large banks and corporations of every stripe. There are lots of metrics and the article discusses how if you compare individuals on the metrics the measures go up. Apparently in the auto repair business, metrics are such things as:

  • Average up-sell per advisor
  • Additional recommendations per Repair Order
  • Additional average Customer Pay per Repair Order
  • Warranty to Customer Pay conversion
Customer declining of these additional up-sells are seen as a problem, so the industry has developed tools and techniques to overcome objections. They have found that if the advisor walks the customer through each recommended repair and "prioritizes" its importance, the customer pays for more repairs. They can use printed reports to help with this. The Recommended Action Plan can itemize all the suggested work and highlights in color (presumably red), those that are most urgent.

Now I have had some experience with this process. I use a variety of places to service my auto based on convenience. If I am out at one office and there is a quick lube next door and I need an oil change, I will just get it done. I may even flush the radiator, rotate the tires, or do something else. Once at a new car dealership, a service advisor gave me this long list of work that he recommended and I asked where did he get this from? He told me that it was basically the list of everything that had to be done at certain intervals. If for example, my car had 80,000 miles on it, he might recommend a timing belt, even though I had someone else change the timing belt six months before. If I was not paying attention or did not remember what I had done, which is more likely the older one gets, I might just authorize the work. It had nothing to do with the condition of the vehicle.

I am not against using metrics. They are important tools for accountability and to compare performance. But they go horribly awry when the metrics are wrong, there is little subjectivity, the compensation is tied to the metrics, the interests of the employee and the firm are elevated above the customer's interest, the numbers are easily gamed by ethical lapse or cheating, etc. There are also many important work products that cannot be captured by metrics. I would love to see a metric in an auto shop that measures what my mechanic did. We could call it, "Sending The Customer Home Without Charging Them Anything. It might actually be the most important metric of all.

What does this have to do with the financial crisis? There are two competing models here. One model is about extraction and consumption. Extract as much as you can so you can consume as much as you can. The other model is about preservation and investment. My new mechanic believes in preserving my money and investing in the relationship. In so doing, he also preserves his time, does not wear out his equipment, and perhaps provides faster service to other customers. With the time he is not spending doing unnecessary repairs on my vehicle, perhaps he is working on another vehicle, helping his spouse, or playing with his kids. There is a benefit to both of us that cannot be measured in currency.

The current mortgage foreclosure crisis is a result of "extract and consume" thinking. How many tales are there of borrowers that bought more house than they could afford on false "stated income". The mortgage originators must have been hitting some great metrics and getting big payouts. What about the lenders that made so many loans they did not have time to process the paperwork afterwards. Great metrics. Big payouts. What about the investment bankers that packaged these deals up and sold them to unwitting investors? Great metrics. Huge millions in payouts. What about the banks that loaded up on this stuff, many of them knowing the shortcomings but also knowing that they could get short-term results and that hopefully home prices would rise forever and everything would be fine? Great metrics and fantastic bonuses. What about the Federal Reserve that now owns much of this crap? Oh, never mind.