Article

Evaluate Your Parts Department: Know Your Most Profitable Customer

March 2008, Auto Dealer Today - WebXclusive

by Don Reed - Also by this author

Last month, I pointed out that if you want to achieve different results this year, you must be prepared to do different things. My focus was primarily on the service department and more specifically the service drive processes being used every day with your customers. I did not, however, devote much time to the parts department, so here we go.
Now, I’m not going to write about the usual inventory turns, true turns, stock orders, special orders, obsolescence or other items of that nature. Instead, I want to encourage you to think about your parts department’s level of service. To put it another way, does your parts department provide every customer the highest level of service they possibly can? Well, to answer that question properly, we must first determine who is the customer? My definition of a parts customer is simply anyone who needs a part. That’s simple enough but let’s makes a list: 
  • Retail Customers: either over-the-counter, telephone, or Internet
  • Wholesale Customers: either over-the-counter, telephone, fax, or Internet
  • Service & Collision Center Technicians

Now the question is which one of these categories of customers produces the highest level of gross profit for the dealer? Which one has the highest impact on owner retention? Which one has the highest impact on brand loyalty? Which one contributes the most towards fixed coverage? Which one has the most impact on CSI? The technicians! If you doubt my assessment then look at your December financial statement’s sales and gross profit page, and total the parts gross and labor gross from customer pay, extended warranties, internal and factory warranty for the service department and collision center. Then, simply compare that total to the total gross profit produced from all of your other parts accounts.

Don’t assume that I’m professing you ignore all of your other parts customers because I’m not. Obviously, all customers deserve the highest level of service possible. What I am professing is that you understand the priorities for your level of service. Do this by evaluating the staffing level, as well as the allocation of your parts personnel to effectively support all of these customers. That sounds like a good thing to me!

Here is an example of what I’m talking about. In a recent workshop, a service director was boasting about his wholesale business, which generated about $120,000 in sales the previous month. Here was my interaction with him at this point:

  • What was your gross profit margin?
    12 percent (About $14,000)
  • How many delivery trucks and drivers?
    Three trucks and three drivers
  • How many people are on the retail parts counter?
    Two because we sell a lot of accessories
  • What does your parts manager do?
    He handles all of the wholesale accounts
  • How many parts counter people on the technicians counter?
    Two
  • How many technicians do you have?
    14 in service and 6 in the collision center

Have you stopped laughing yet? Do you get my point? I mean, do you really believe that this dealer is making a “profit” on $14,000 in wholesale gross while paying depreciation, fuel, insurance, and maintenance on three trucks, plus the wages and fringe benefits of three drivers and a full-time parts manager?

This guy has consumed way too much “wholesale Kool-Aid!” Is it any wonder that his shop productivity is a whopping 83 percent? He also told me that technician “turnover” was a problem for him lately and he has replaced all of his service advisors this past year. Gee, I wonder why? This guy needs to move to Orlando and hang out with Mickey and his friends in Fantasyland!

Okay, enough sarcasm for now, but how do you measure up in supporting your technicians? The only way to find out is to spend a day in your parts department at the technicians counter. Actually, you’ll have a pretty good idea by noon. Bring a notepad with you to record how much time each technician is spending at that counter waiting on parts. If you did that for the entire day, then multiply that number of lost minutes (hours) by 22 working days, multiplied by your effective labor rate multiplied by your labor profit margin, and that’s the amount of gross profit you’re losing each and every month by not having the highest level of service possible for your technicians. If this exercise produces a very ugly number for you in lost profits, what are you going to do about it?

First of all, evaluate all of the personnel assets that you currently have in your parts department and re-allocate if you can. Second, hire the additional counter people now if you need them. I’ve already showed you how they will pay for themselves. Your turnover will go down, and your technicians’ morale will go up because your presence in the parts department sends a strong message to all that you’re serious about service. Isn’t it about time your parts department started making more money?

Vol 5, Issue 2

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