Turn a Wholesale Profit
Randy Michael started working at Price LeBlanc Toyota in Baton Rouge, La., 36 years ago—right out of high school—and, in that time, has seen the parts department evolve. One of the changes that he’s seen has been the growth of the parts department’s wholesale business.
Along with his own department’s growth in that segment, the parts manager has also seen an increase in competition with more aftermarket parts businesses popping up and insurance companies taking a bigger “bite out of the profit.” So, even though it continues to grow its business, the increased competition has made success with wholesale even more difficult.
In order to keep wholesale parts within the department, Michael stresses the importance of turning a profit. The problem? It’s one of the most expensive segments to run.
“You have drivers and vehicles [for wholesale]. You need to maintain that vehicle and you have to insure that vehicle and [because of that] it’s becoming less and less profitable. You need to be able to pay those expenses and make a profit,” Michael says.
Michael shares a few keys for making a profit in wholesale.
Take advantage of rebates.
Wholesale parts present an obstacle for Michael because he doesn’t use a matrix. Since wholesale customers have access to MSRP online, adding a matrix on the price makes it looks like they’re hiding something, Michael says.
“Insurers know [manufacturer] pricing,” Michael says. “You can’t say it’s higher than what it is.”
What Michael does to combat breaking even or losing out on sales is to ensure he makes as much profit as his manufacturer, Toyota, does by taking advantage of rebates.
“Toyota gives rebates on certain items that help us compete against the aftermarket,” Michael says.
The way it works is certain parts will be offered at a discount (which can go up to 15 percent off with Toyota) through a rebate. So, the parts department will offer the part at the manufacturers’ listed price and then keep the rebate.
Michael’s aim is to get 15 percent plus cost on his wholesale parts, but says anything above 10 percent is typically sufficient. The claims are then submitted to Toyota on a monthly basis for reimbursement, Michael explains.
Communicate with manufacturer.
If there’s no profit, there’s no reason to be in the wholesale parts business. That’s why it’s essential to express concerns to the manufacturer if there are issues turning a profit, Michael says. The rebate program was put in place to help out parts departments earn money on wholesale. That’s just one example of why feedback to the manufacturer is so important, Michael says.
Any concerns about part sales can be expressed directly to your rep, Michael says. Beyond that, Michael participates in a regional roundtable of parts managers where they meet to discuss issues like wholesale parts pricing.
“You have to look at your expenses and the controllable expenses you have,” Michael says.
As Michael mentioned, there are many overhead costs that go along with wholesale parts. So, if there’s a way to cut down expenses in that area, that can be one way of making wholesale more profitable. He suggests keeping an eye on driver’s hours and routes to make sure that they are run as efficiently as possible and that no time—or fuel—is being wasted.
Evaluate the effectiveness.
“If we’re breaking even or losing money, it’s time to get out,” Michael says.
Although he doesn’t think getting out of wholesale is any type of solution, there needs to be value in what you’re doing and, if there’s no profit, it may be worth evaluating your options to decide whether or not it’s worth it in the long run.