Column: Open recalls are untapped opportunity for service departments

Automotive retailers are sitting on a largely untapped source of revenue that is easily within their grasp.

Unrepaired vehicle safety recalls represent a potential $36 billion industrywide opportunity. These vehicle repairs can provide dealerships with additional parts and service revenue, which can boost profitability in both good times and bad.

Unrepaired safety recalls are a chronic challenge for the automotive industry. According to AutoAp research, about 20 percent of all vehicles on the road have one or more unrepaired safety recall at any given time. Several factors contribute to this, including confusing discrepancies and timing delays between sources of information, human error entering recall data and consumer apathy about perceived minor repairs.

With nearly 230 million vehicles on the road that are 2000 models or newer, there are approximately 46 million with unrepaired safety recalls. AutoAp's data shows many vehicles have more than one unrepaired recall for an average of 1.25 each, which means a potential total of 57.5 million recalls available to be repaired. According to NADA, the average recall parts and service repair reimbursement is $440. In addition, AutoAp clients generate $250 to $430 in additional customer pay during each recall visit. Add it all up and there's a potential $36 billion out there.

On a per-dealership basis, assuming roughly 16,800 franchised stores, that comes to at least $2.1 million in potential additional revenue per dealership. That's a lot of money just waiting to be made. And, with new recalls occurring frequently, the opportunity continually refreshes.

Why aren't more dealerships taking advantage of this potential windfall?

Many dealership owners mistakenly assume they are covered from a liability standpoint. Because of data errors and timing delays, many open recalls fall through the cracks, and dealerships are not covered. Period. This needs to change industrywide.

In addition, dealerships often simply ignore the revenue-generating potential of finding and fixing open safety recalls because it is not the "sexy" end of the automotive retail business.

Finding open recalls using manual processes is time consuming, expensive and error prone. Because of this, many dealerships simply don't take advantage of the opportunities to find recalls. An automated process that checks against multiple industry sources to provide daily updates on current inventory and periodically check customers' vehicles is an efficient method for finding open recalls. This helps dealerships limit liability, drive additional revenue and is easy to implement.

There are two primary sources of unrepaired safety recalls dealerships can tap to generate additional revenue. The first is from vehicles currently in their inventory that are unsafe because they have open recalls. The second is from customer vehicles that can be brought in for service.

According to AutoAp research, nearly 15 percent of a typical franchised dealership's new and used vehicles have one or more open safety recalls. By missing recalls in its inventory, the dealership leaves itself unnecessarily exposed from a liability standpoint and at the same time leaves "easy money" on the table.

The second set — customers' vehicles — generally mirrors the industry average of about 20 percent of vehicles having one or more open safety recalls. Often, a customer drives off the lot with a clean vehicle only to have a recall issued days, months or years later. Even though manufacturer recall programs strive to catch recalled vehicles, there are still millions of vehicles that fall through the cracks.

Of course, finding open recalls is only half the battle. Dealers still need to get customers back into the dealership to get their vehicles repaired. Most dealers, however, have the infrastructure necessary to seamlessly bring back customers. They just need a more powerful reason to do so. Enter recalls.

Customer information is at their fingertips through their CRM system, which can be cross-referenced against current recalls obtained through an automated approach. Outreach can be implemented through the CRM, a BDC, service advisers or other dealership marketing channels.

The nature of the outreach can be powerful as well. Dealerships are alerting their customers to a potential safety issue that could injure or even kill customers and their families. And, repairs will be free to customers. That's something that can help cement long-term customer relationships. It's probably a much more effective marketing tool than sending a birthday card or an oil-change reminder or coupon.

Recalls are not going away and will continue to grow. Increasing technological complexity of today's vehicles means there are more safety features that could go wrong as many advances are safety related. Electric vehicles and autonomous vehicles will be under a close watch from safety advocates. These will likely increase NHTSA scrutiny, resulting in even higher rates of safety recalls.

If dealerships want to grab a slice of the $36 billion pie, they should consider getting their recall processes managed and automated, which will allow for constant revenue generation through inventory and customer vehicle recall review. This will also help dealerships limit liability and create better customer relationships.