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Twins Separated at Birth
by: Jim Richter
Once, service and parts were considered as one...
Back when our industry began a little more than a century ago, most dealerships were primarily repair shops or custom coach builders. Service, Parts, and Body Repairs were all together and the businesses were typically called a “Garage.” Retailing of new vehicles was in its infancy and the businesses thrived on repairing carriages, farm equipment, and the new fangled automobiles be they gas, steam, or electric powered. Most parts were unique to the particular vehicle being worked on and it was not unusual for the shop to have a forge and a blacksmith available to make what they needed. It wasn’t until mass production came on the scene that any semblance of standardized parts became available, and it was even later still that those manufacturers’ established distribution systems to get them out to their dealers. This is when the advent of the separate ‘Parts Department’ occurred, somewhere after World War I.
That was then...
Since that time these three profit centers have drifted apart as business management focused on each being able to support itself financially under the umbrella of the dealership. After World War II Sales became King, filling the pent-up demand created by the deprivation during the war, relegating Service and Parts to a secondary role in the stores. The real money was being made in Sales back then and everything else was secondary to “moving the iron.”
This is now...
Fast forward to the last 20 years. As sales profits declined due to market competition and eroding margins from the manufacturers, enlightened dealers began to re-explore the hidden opportunities that lay in their “Back Shop.” In reality they were always there, but it took a changing market to make them re-discover them. The immediate focus was on Service since that is where most of the income potential was (supposedly) and the majority of customer contact lay. Parts were basically still along for the ride with the exception of those few dealers who were seriously involved in the Wholesale business. It was assumed that Parts would rise with Service so little attention was paid to them insofar as their operations were concerned. Only when theft, or severe Obsolescence occurred did someone get concerned.
Modern dealerships have learned that Parts Operations can, and should be, a strong contributor to the overall profitability of the store.
- No longer is it sufficient to believe that the Inventory investment is what the Financial Statement says it is. It should be checked and verified monthly with a proper Reconciliation between the Inventory and the General Ledger.
- Individual Personnel Performance is something to be measured and evaluated just as it is in Service and Sales. DMS reports can provide accurate information on each and every sales person in Parts.
- Gross Profits are no longer a ‘bonus’ at the end of the month, they are forecast and tracked daily. Good managers drill down to individual transactions to see whether pricing policies are adhered to.
- Customer handling is an important issue that must be part of everyday processes. Telephone techniques, Internet procedures, and Shop Counter service are all part of the formula.
- Creative Pricing Policies are in place to maximize Gross Profit opportunities based on the sale type and quality of the customer. Matrix Pricing, Sales Weighted Price Averaging, and multi-level discount structures for Wholesale customers are just some of the tools needed.
- Obsolescence Controls are critical since most manufacturers no longer provide sufficient relief. I often see the implementation of a ‘Prevent Defense’ here which results in reduced service to customers in the hope of reducing Obsolescence. It doesn’t work well in sports and it doesn’t work well in Parts either.
- Staffing is often inadequate to achieve objectives, both in the numbers of people employed and in the quality of those who are. Going cheap on productive people and management is not usually a formula for success.
The moral of the story is that unless you provide the resources necessary for a successful Parts Operations you will never reach the potential that it is capable of, and the Profit Centers that it supports will under perform as well. If you would like to take a short Self-Assessment please contact me and I will send it to you.
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