Recently, I developed some poignant materials and conducted workshops on various areas of Dealer parts operations. Part of this multi-faceted program included having participants perform various pricing surveys of quite a few competitors, both Dealers (not necessarily in their area) and a collection of the varied Aftermarket offerings. The goal was to broaden the understanding of the parts and service managers to the many pricing and warranty options, which are obtainable, as well as readily available to their customers and competitors as well.
So, the results were quite interesting. First, it was apparent that few managers were truly aware of what was offered globally versus their factory offerings and/or best buddies down at the local parts store. Taking valuable time to study the bigger market, especially when most of these supervisors were probably wide-open from daily opening to close, wasn’t something that seemed important in comparison to “right-now” demands. Secondly, utilizing the factory parts software is much quicker and easier – “Why stretch Stretch – I got three people in my face fruitcake?”
Heaven and Hell
Generating maximum gross profit parts margin in all sales categories is now tougher than an overcooked Mexican strip steak. Low gross maintenance parts (what’s left of them) permeate customer vehicle needs like fleas on a lost dog; handing out discounts like Halloween candy in October, necessary or not, is the new service business norm; the retail margin on more and more factory parts is shrinking like a cheap Asian shirt, and the used car manager is getting tighter than Spanks. It’s comparative heaven and results in hell out there for some.
Back to the workshop (Don’t ya love metaphors)? As you probably ciphered, there were many revelations. One of the biggest and best was that some factory retail prices were much lower than every Aftermarket alternative! On the other hand, some factory offerings were out in left field and truly not competitive, if the published what-idiot-thought-that-was-a-reasonable retail price was applied. I get concerned when I know that most customers don’t clamor much when they are ticked over pricing – they just move on to Mick the mechanic. What is more comparable to consumers than the price of the parts our DMS software loves to list separately and predominantly on the repair order – certainly not labor?
“check the loyalty to the independent shop owners – in the 70%+++ range – much has to do with applied parts knowledge including right purchasing.”
Cover Me, I’m Going In
Other tidbits surfaced such as exclusive and generous Aftermarket warranty coverages, including parts and labor. The Aftermarket features an abundance of “lifetime” warranties versus the prevalent and quite ancient 12/12-factory call. Ford (Fix Or Repair Daily & Found On Road Dead are so over) got it right with their sweet 24/24 warranty parts program, and I have installed it universally for my client base after looking at the parts breakage actuaries (I think that’s how you spell it). Experienced car guys and gals know that if a part is going to break, it will break soon, not 14 months from now (And who remembers the warranty coverage by then?).
LKQ popped up with some comparatively high-discount pricing. They are the “force” in used (“pre-owned” for High Lines William III) parts these days, and they even deliver to your selected doorstep! On some of these older, high mileage beaters, this may be the “bestest” choice, especially when there aren’t extra funds for the fixing. Many managers were surprised at the massive price difference in many cases.
When the current crop of, dare I say fairly profitable, recalls are completed; most franchises are going to get a real poke in their profitable service and parts eyes. The reality is that most of the no-choice-forced-to-come-in consumers will go back to where they came from for service. The second reality is that there was absolutely no way for overstretched service personnel to properly handle the overwhelming volume of overly excited and under-informed vehicle owners, who turned into thousands of Chicken Littles after the media scared the crap out of them.
So, as we progressed in our sessions I queried which dealer personnel needed to have intimate knowledge of our thought-provoking findings. “The counter people” came up first, and unfortunately last. One of the glaring and unfortunate situations for new car franchises versus the competition, is that Dealer service individuals handling the transaction process are most ignorant of parts pricing or offerings. The good news is that currently developed software has done a better (not superior) job of providing, at least, factory pricing (right or wrong) to these long-working writer sweat hogs.
Whatta They Got?
Independent shop and professionally run Aftermarket franchise gurus typically know their niche parts pricing and options thoroughly, providing guidance and price options for their impressed customer base. Even better is the fact on some right-costed factory and Aftermarket items, one can match the 50%+ + margin Aftermarket shops enjoy. And, check the loyalty to the independent shop owners – in the 70%+++ range – much has to do with applied parts knowledge including right purchasing. I know intimately because I have been a manager and owner of both sides of this prison-high fence.
So what Eduardo? My advice is to take time to study the available parts market thoroughly – be a respectable project for the general manager, who can use it as an excuse to skip the next useless corporate meeting. To that end, I will supply you with a Parts Market Study if you are interested. Secondly, share all findings with the parts and service personnel – even the techs, who are usually clueless and negative about the Aftermarket if they haven’t been there (although they buy their racing parts there????). If you can enter additional right-priced Aftermarket data in your software, it’s just another win.
Send your request to firstname.lastname@example.org and put on the subject line: “Parts Survey – Beyond the Conceived MSRP,” and I’ll send it along with haste so you might find some ways to fatten your skinny parts margins. I’m so excited now I think I’ll do another survey for my own shop!
Author: Ed Kovalchick
Ed Kovalchick is the CEO and founder of Net Profit Inc., Alabaster, AL, an international fixed operation consulting and training firm located in Alabaster AL. Mr. Kovalchick and his firm have assisted hundreds of dealers and manufacturers, and conducted workshops throughout the world for thousands of students since 1979. He has written columns for Dealer Magazine since its inception. Reach him at Ed@NetProfitGroup.com.