Fountain Valley, Calif. -- Frank Ferrara, executive vice president of Hyundai Motor America, is in an enviable position. With Hyundai's new-car sales climbing from 91,217 in 1998 to 455,520 in 2007, the company's parts and service business is all but guaranteed to continue climbing in coming years."It's been fantastic since about 1999," Ferrara said. "The parts and service business is driven by the units in operation."
The growth has also created additional competition for Ferrara, who has been with the company for 20 years. "When we were a small company with a limited number of units in operation, no one was interested," he said. "As we have grown, more aftermarket parts have been offered for our vehicles."
While Hyundai has done well at retaining business in the collision repair market, with a market share of about 80 percent, Ferrara said its market share in the mechanical market is considerably lower.
To ensure that its dealers are able to capitalize on the company's number of vehicles on the road, Ferrara is focusing on two areas. The first is improving customer loyalty to dealership service departments and the second is improving the services that dealers are able to offer to wholesale parts customers.
"Our No. 1 goal is customer retention," Ferrara said. "Keep the customer coming back to the dealer for service. Everything else that we do (to sell parts) has a much lower return." He said that Hyundai's retention rate in its service departments after three years is 67 percent, dropping to 50 percent after five years.
As the company's reputation for quality has improved, so has the quality of the customers purchasing its cars, which has led to small but steady improvements in service department retention rates, he said.
The improved quality has definitely been beneficial for the company and has improved car sales, Ferrara said, but the effect on service departments has been a significant reduction in warranty work. "One of the challenges for our dealers has been how to change their focus from warranty business to retail sales," he said.
One way that Hyundai has helped is to provide dealers with customized reports on customer retention, Ferrara said. "The report maps out the owners that are loyal and those that haven't been back within 12 months," he said, noting that the report tracks owners with vehicles that are up to five years old.
Ferrara said that marketing has been designed to get new owners to return to the dealership for service as well as to get defectors to come back. Oddly enough, defectors who return to the dealership actually spend more on average than loyal customers, he said.
One marketing campaign that has proven successful is to send out a coupon for a free touch-up paint pen, Ferrara said. "It's worth about $5 or $6 but it draws better than a $25-off coupon," he said. The offer is often also tied to a free 34-point vehicle inspection.
At the dealership, Hyundai is providing training on greeting the customer and making sure that the service writers are communicating well with customers, Ferrara said. Speaking of the company's five-year/60,000-mile bumper-to-bumper warranty and 10-year/100,000-mile powertrain warranty, Ferrara said, "One of the downsides of having America's best warranty is that sometimes consumers have an expectation that all their service is free, so we need to be careful to ensure that we explain to the customer just what work is being done and what they are paying for."
No matter how good Hyundai gets, Ferrara said, he recognizes that there will always be aftermarket repair shops. Competition from aftermarket repair shops has grown along with the company's car count, he said. "Fifteen years ago it would have been hard to find an independent to service a Hyundai, but now there are shops that specialize in repairing Hyundais."
Ferrara added that because the car owner often measures an aftermarket repair experience as part of the overall satisfaction with owning the vehicle, it is important to Hyundai that the aftermarket has the information it needs to fix the vehicles and uses the best parts available. He pointed out that Hyundai service information is available on its Web site www.HMAservice.com and is free to the aftermarket.
"The question for us becomes how do we get a piece of the parts business -- how do we make the aftermarket our friend?" he said.
Ferrara said that Hyundai and its dealers have already done a lot right to ensure they can take care of the aftermarket repair shop's parts needs. For instance, he said, Hyundai is ranked among the top three car manufacturers for having the most competitive parts prices and among the top five for parts availability. The company recently dropped prices on 41 of its fastest moving parts to ensure its competitiveness in the market, he said.
"I think that some repair shops don't understand how price- competitive our parts are," Ferrara said. "Our prices are often equal to or better than our aftermarket competitor."
The company will continue to work to find more competitive sources to supply its parts, Ferrara said, and it also is working to improve its ability to get parts delivered to shops in a timely manner. While many dealerships do a good job of servicing their areas, he said that with only 756 dealers it can be difficult to match the level of delivery service offered by aftermarket suppliers. "We are working on a number of strategies in this area.
"We would like to support the aftermarket so that the consumer gets a quality repair with quality parts because, ultimately, we are in the business to sell more cars," Ferrara said.
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