Internal Repair Orders (Internal ROs) represent a unique aspect of dealership operations. Internal Repair Orders (Internal ROs) aren’t about the customer. They’re about the dealership itself. Unlike Customer Pay or Warranty ROs, these jobs focus on servicing dealership-owned vehicles like used inventory, fleet vehicles, and demos.
Internal ROs don't generate revenue, so there's no commission here. But, they support sales and efficiency. From reconditioning used vehicles to maintaining fleets, these ROs ensure smooth operations. They also boost profits, though indirectly.
The Basics Behind an Internal RO
An Internal RO is the official record of work on dealership-owned vehicles. It includes any service, repair, or maintenance done. These ROs are used for:
• Reconditioning Inventory: Preparing trade-ins and used vehicles for resale, including mechanical work, cosmetic repairs, and detailing.
• Fleet Maintenance: Keeping loaner cars, shuttle vans, and service trucks in top condition.
• Demo Vehicle Repairs: Servicing demo cars used by potential buyers or dealership staff.
While the dealership foots the bill, these ROs are critical to maintaining operations and maximizing vehicle value.
Why do Internal ROs matter?
It's all about smart investment. Dealerships can ensure operational efficiency and boost the retail value of their inventory by keeping fleet vehicles running smoothly and trade-ins looking sharp.
Who Initiates an Internal RO?
Internal ROs have a customer- the dealer. These tickets are only created in the dealership and have nothing to do with customers. Here’s who typically kicks things off:
1. Sales Department
Reconditioning requests for used inventory to prepare vehicles for resale.
Includes: mechanical fixes, paint touch-ups, and detailing.
2. Service Department
Identifies necessary repairs during vehicle inspections or diagnostics.
Examples: trade-in inspections or vehicle safety checks.
3. Fleet Managers
Initiates maintenance or repair requests for company-owned vehicles.
Includes: routine servicing of loaners, shuttle vehicles, and demo cars.
Once initiated, a Service Advisor logs the details and creates the Internal RO to guide the repair process.
Warranty RO, commissions, who cares?!
Who Pays for Internal RO Work?
The dealership eats the cost of Internal ROs, split across specific departments.
A common example:
Used Vehicle Sales: Reconditioning costs here. They are in the gross profit per vehicle.
Fleet Operations: The fleet budget pays for maintenance of loaner cars and shuttles.
These and other cost allocations helps departments stay profitable and on budget.
How Internal ROs Contribute to Dealership Profitability
Even without direct customer revenue Internal work actually boosts profits. Here's how:
1. Increasing Vehicle Resale Value
Reconditioning inventory boosts used vehicles' retail appeal. It lets the dealership charge higher prices. Key metrics include:
- Cost-to-Market Ratio: Balances reconditioning costs with the market value of the vehicle. High-performing dealerships aim for a cost-to-market ratio of 75–85%.
- Gross Profit per Vehicle: Reconditioning affects the margin on used vehicle sales.
2. Supporting Fleet Operations
Maintaining loaner cars, shuttles, and demos is key. It ensures smooth operations and a good customer experience. And, as you know, well-maintained fleet vehicles retain higher residual values when sold.
3. Managing Overhead Costs
Internal ROs help dealerships balance technician workloads during slow times. This ensures efficient use of labor. This reduces downtime and maximizes productivity.
Internal RO Payment Structures by Department
Internal work impacts multiple departments, each contributing to and earning from the process:
• Service Advisors: Often salaried with minimal commission for Internal ROs, as they don’t generate direct revenue.
• Technicians: Paid based on flagged hours, just like Customer Pay or Warranty ROs.
• Parts Department: Charges the cost of parts used to the relevant department or vehicle.
• Sales Department: Absorbs reconditioning costs. They are in the vehicle's gross profit.
• Accounting: Ensures costs tie out and allocated to the correct department.
Why Do Warranty ROs Matter to You and Your Dealership?
Internal ROs are the unsung heroes of dealership operations. From reconditioning inventory to maintaining the fleet, these ROs quietly drive operational efficiency and profitability.
By optimizing reconditioning costs, utilizing labor effectively, and maintaining reliable fleet vehicles, dealerships can maximize the indirect revenue potential of Internal ROs.
When viewed as part of a broader strategy alongside Customer Pay and Warranty ROs, Internal ROs complete the puzzle of dealership service operations. Together, they ensure smooth workflows, happy customers, and a healthy bottom line.
