The price you pay for a parts purchase makes or breaks the ultimate margin – never the sale price!
There is so much more in the Aftermarket world than dealer personnel, who have never ventured there, realize. With the constant push backwards that used vehicle gross is experiencing, along with some of the 100K plus mile vehicles running around, the price of parts and related benefits are getting more and more important to the used recon process. And a large internal parts discount (as a fix) just means the parts manager takes it in the derriere for the sake of the so-called “team”, even though the UC manager considers any part over a $10 as too much.
The franchised dealer parts world is quite limited in many ways, more than ever in these times. Newer and stringent manufacturer loyalty programs now place an unfortunate situation on parts departments, which create service carryovers when parts aren’t on the shelf, especially in domestic dealerships. The unintended consequences of having an overnight order inconveniences the customer, creates an expensive loaner demand, ties up valuable stall space, and diminishes tech production. Everyone loses, and yet the needed item is five minutes away in the Aftermarket, or at another like dealer down the road. Is this program demand really a good idea?
OE equivalent or better parts pricing to the dealers, versus what is available down the street, sets up a huge disparity. Oil filters are a prime example, where OE micron spec filters can be commonly purchased for around $2, (often manufactured by the same company – just a different label) while they generally cost some $4+ from the manufacturer. Another factor is quality in some instances – take an unnamed manufacturer’s penchant for putting marginal tie-rod ends on their pickup trucks (I see a smile there). Far more substantial ends are available locally for less cost, including greasing zerks, to assist in ensuring long-term use. Oh, and they are from the exact same parts manufacturer the factory specs and buys their tie rod ends from – so they obviously recognized the need for improvement for the Aftermarket. Of course, there are inferior parts floating around in both the Aftermarket as well as OE parts (say “recalls” Randy), so some study is needed in any purchasing; however, it isn’t rocket science.
Loyalty thank you
Where Aftermarket parts are really important to a very profitable margin is applied to the used vehicles of other makes, and the relatively few high mileage vehicles using serviced. Be loyal to your brand otherwise, keeping in mind that the back money the manufacturer makes available with some loyalty programs is substantial, making up much of the difference. The truth is, you want your manufacturer to be successful, or otherwise everyone is on the street. The parts division is a major supplier of their profits, and they are forced by the government to invent in a substantial amount of slower moving emission parts for many years as one example of a hidden cost.
Few (likely none) dealers can survive on new vehicle sales and their cheesy margins, so used vehicle income is where keeping afloat, along with the fixed ops, is vital. The vast used vehicle market is some three times larger than the annual new vehicle market, and it includes all types of makes and related applications. Getting parts and even accessories for these, where a margin of 55% or better is available, is just plain smart. The margin key is not what a part is sold for, but rather for what price an item is purchased allowing for an excellent margin, and this requires some study and related negotiations, worth every minute of effort.
I visit dealers and ask the parts managers what pricing tier they are purchasing from with their Aftermarket supplier(s) – they don’t know. Every counter person buys from their buddies at different locations so volume rebates are out the window. They don’t get the labor paid at the door rate for on a defective part replacement, don’t get a national warranty, never mention available training, or setting up their own pricing schedule on the Internet. No tracking for potential stocking is done within a DMS source, and available free repair / maintenance software resources for service are unknown. Guaranteed 30-minute delivery – really?
Ever wonder where parts go when your return them to your manufacturer (no, not parts heaven out back)?
Try WORLDPAC – from their website: WORLDPAC imports original equipment and automotive replacement parts directly from the most respected manufacturers in the industry. Our complete product offering includes over 120,000 products for over 40 import and domestic vehicle carlines.
WORLDPAC imports parts directly from the most respected original equipment suppliers and manufacturers in the automotive industry. With over 7 million total vehicle applications, WORLDPAC’s supplier community represents one of the most comprehensive product inventories in North America.
In my region, WORLDPAC has a warehouse with twice daily delivery many miles out as well as overnight service when a piece is not in stock. NOS (new old stock) factory OE parts for half price and less, not too shabby, and much more such as a nationwide warranty. This is just one example of where my independent shop friends shop to ensure a 55%++ parts margin.
The ironic part (no pun here) is that the reason independent shops are cheaper is their reduced parts pricing, since the labor rates and flat rate books are essentially the same as the franchised dealer. Although I have witnessed (far too often) dealer techs ripping customers off by demanding highly inflated times from non-technical writers and managers ill-equipped to challenge any semi-competent tech. When it occurs once, it doesn’t stop, and soon the practice spreads throughout the shop. When I calculate 200% output from a prima donna blowhard tech, it’s unequivocally apparent what the hell is going on! And as a former master tech, shop owner, and now a genuine geezer tech, I tend to be very pro-tech; but integrity precludes everything else for me regarding service customers. I often point out that they are the individuals paying everyone, not the usually cash-poor owner, who would run out of current cash quickly otherwise.
About six or so years ago I offered a worksheet that I have recently updated, which lists twelve important areas a parts pro should negotiate with an Aftermarket supplier. My favorite approach for my clients is to get about three competitors together, give them an idea of the volume we will purchase, and go over what we are looking for on the worksheet – then let them go home and document what they can and will do for the dealership. There is a certain dimension of fun in this I must say, but the results pitting competitors against each other yields some very beneficial results for my clients.
If you want the negotiation worksheet just send me an email to Ed@NetProfitGroup.com and put on the subject line: “Parts Worksheet-Make Me A Buck Bro” and I will send it directly. This formulation is much easier and more effective than slapping your suppliers around – guess how I know. Ah, I love this business.
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.