Parts Finance Operations

Two Essential Parts Profitability Tips

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Longtime industry consultant Larry Edwards says that the parts department presents perhaps the greatest opportunity for profit improvement in fixed ops.

“You can’t do service without parts. You can’t do collision without parts,” he says. “And over 50 percent of every ticket comes from parts.”

Dealerships nationwide sold $64.7 billion in parts in 2016—roughly $15 billion more than they did in service and body labor.

“It’s a critical area of your operation, and most are not as profitable as they need to be,” Edwards says.

Here are two of his biggest tips to increase profitability:

 

1. Don’t get swept up in OEM replenishment programs.

It might seem like you are required to accept and purchase specific parts from automakers, Edwards says, but it only appears that way.

“You still have the choice, and you can still choose what you purchase,” he says. “It’s kind of like getting hardened in the arteries: You don’t know it’s a problem until it kills you. Too many think that because the manufacturers are taking care of the parts orders, you don’t have to worry about it, but it’s building inventory and oversee inventory.”

And you’re often stuck with those parts long after the value has plummeted.

“Inventory levels used to be 1 or 2 percent, and now it’s nothing to see 15 percent,” Edwards says.

The solution is simple: Your manager doesn’t have to accept the suggested order, Edwards says. Focus on your inventory records and what moves off the shelves. Stock accordingly. Edwards sets a benchmark of 2 percent for inventory over a year old—“If you can manage that, you’re doing a very good job controlling those levels, and you’re going to be far more profitable,” he says.

    

2. Implement simple retail fixes.

Most dealerships do “a lousy job” marketing their parts departments to waiting customers in the dealership.

“This is your largest growth opportunity [in parts],” Edwards suggests. “And think of the margin issues: You get 40 percent no problem on all your service work, but the moment someone comes to the counter and looks you in the eye, that’s dropping to 30 percent to cut a deal and discount. Why?”

It comes down to proper marketing. Edwards worked with one dealership that made no other changes to its retail approach apart from creating new signage within the lounge and parts counter—simple display boards and signs put together by a merchandising consulting company. That change alone gave a boost of $20,000 in retail sales per month.

“You have customers sitting around all day, and it’s a great opportunity that is often missed,” he says. “No one is really focused on this right now, and it’s right there.”

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