June 2011, Auto Dealer Today - WebXclusive
When one thinks about profit in fixed ops, the service department likely comes to mind first, while the parts department is often regarded as something of an appendage or counterpart to the service department rather than a separate business capable of generating substantial profit.
At Jerry Seiner Chevrolet in Salt Lake City, Utah, the parts department has been cultivated to a level of success not seen by many, largely due to its wholesale operation. “Everybody does wholesale to some extent,” said Rod Rowley, the dealership’s general manager. “They just haven’t gotten as large as our parts department.” The department sells $1.6 to $1.7 million in parts each month, according Rowley. A little over $1 million of that is made up of wholesale parts sales alone.
He credited the parts department’s success in wholesale to the dealership’s parts director, Larry Greenhalgh, who has been with the store almost 28 years. “Over the years he’s just developed the parts department into a big wholesale operation,” he said. “All these independent shops [and] collision centers that are around [have] got to get their GM parts from somewhere, so Larry saw an opportunity and … made a decision to stock more and develop a customer base.”
At first glance, Jerry Seiner Chevrolet in Salt Lake City, Utah, looks like most other dealerships. However, behind the scenes is a mammoth parts department that regularly sells between $1.6 and $1.7 million in parts a month, of which about 60 percent is wholesale. To meet demand, the dealership has a warehouse that stocks $3.2 million in parts.
Before becoming the parts director at Jerry Seiner Chevrolet, Greenhalgh already had a vision of developing and maintaining a successful wholesale parts business. Once upon a time, this son of an auto mechanic had the intention of following in his father’s footsteps. While waiting for a service apprentice position to open up, he began working as a parts delivery person for an International Harvester (IH) dealership and started working his way up through the parts department. “It didn’t take very long for me to realize that selling parts, if I could figure out a way to make money at it, was going to be a whole lot more fun than breaking my knuckles on a car,” he laughed.
He later moved from the IH dealership to the parts department of an auto dealership, where he had an “a-ha” moment when his supervisor showed him a financial statement. “That was a big ‘wow’ in my life, looking at a financial statement and seeing where expenses went and … the profit and loss and how we could affect it and control it ourselves,” he said. That dealership did a little bit of wholesale business but “certainly nothing large,” he stated. After his revelation, he began to envision the possibilities of wholesaling parts within a dealership. “I could just see how you could take that [wholesale business] and expand it and make it all work.”
When he later had the chance to apply for a job with Jerry Seiner Chevrolet, he said, “I applied for the job and explained my vision of what I saw and what I would like to do [with the parts department].” The dealer, Jerry Seiner, was willing to give it a try, provided they started things slowly. “It had to be built on a sustainable plane,” said Greenhalgh. While he proceeded with the intention of gradual expansion, things took off faster than anticipated, and the first five years brought rapid growth.
A number of factors played into growing the business, both in that first five-year period in the 1980s and in the years since. One factor, according to Greenhalgh, was Seiner’s willingness to continue investing in the business. “Jerry always allowed us to reinvest our profits back into inventory,” he noted, estimating that in the early years, as much as 85 percent of the department’s profit was used to purchase more parts inventory.
Greenhalgh said the makeup of their parts inventory was also critical, which was something that has been gradually tweaked over time after carefully tracking parts sales history. “It’s something that I do all day, every day—look at inventories and aging and sending parts back when they get too old and looking for buy opportunities.” He has been able to shrink the days supply of each parts number, then take the money saved by buying fewer of a particular part and reinvest it in stocking a variety of different parts. “We shrank the depth of the inventory and broadened the inventory width by stocking more part numbers to give us more coverage,” he explained. “Instead of having, for example, 5,000 part numbers, we built it to where we stock 30,000 part numbers, based on movement.” The warehouse currently carries about $3.2 million in parts.
A big part of Greenhalgh’s strategy for the wholesale operation was adopting the attitude that the customer shouldn’t have to go anywhere else to find the parts they need. “We won’t let our customers buy a part from a competitor,” he stated. If by chance the customer orders a part he doesn’t have in stock, he’ll locate it immediately and purchase it, “even if that means we don’t make any money on the part, because it does two things for us,” he explained. “One, it gives us sales history on the part and we record that demand, and two, it keeps our customer from ever having a need to call a competitor for any reason.”
He places a lot of emphasis on customer service, believing that’s where the difference comes in between buying a wholesale part from Jerry Seiner Chevrolet or buying from a competitor. While they are competitive on pricing, the greater emphasis is on the wholesale customer having a single, hassle-free source for their parts that provides quick, convenient service. “In the collision industry, for example – that’s where we sell a lot of our parts wholesale – cycle time at a body shop is extremely important to their customer, which is the insurance company,” he said. Being able to get the correct parts delivered quickly helps the body shop keep their cycle times low and helps them maintain good relationships with their customers.
While he didn’t specify what kind of freight arrangements the department used for shipping, stating that it was a rather creative solution that he considered to be a “competitive advantage,” he said they will ship parts overnight as far as 300 miles away. “We actually take care of the freight, so it doesn’t cost the customer … extra to get the part.”
"We won't let our customers buy a part from a competitor ... even if that means we don't make any money on the part, because it does two things for us. One, it gives us a sales history on the part, and two, it keeps our customers from ever having a need to call a competitor for any reason."
- Larry Greenhalgh, Parts Director
Retaining good employees is another part of their customer service strategy and one of the keys to maintaining the wholesale business. “We have a lot of employees that have been here for a long period of time. They’re professional, they know what they’re doing, and you have a lot better chance of getting the right part from me the first time than you so somebody up the street that might’ve had some turnover.”
This was an issue Greenhalgh addressed early on by taking a close look at pay plans in the parts department. “Pay plans were a big deal for the wholesale counter guys,” he said. He was aware that many of their competitors focused primarily on team-based pay plans that included little incentive for individual performance. “We put together a plan where an individual, if he really excels, could make a lot of money off his own individual performance, along with a small amount of team [incentive] to keep the team working together.” This enabled him to attract and retain the most knowledgeable and motivated employees, which in turn ensured quality service for the department’s wholesale customers.
Over the years, the parts department of Jerry Seiner Chevrolet has gone from employing six people to a staff of 46, with a number of them having more than 10 years with the dealership. Greenhalgh said five employees staff the retail facility at the dealership – two at the technician counter, two at the front parts counter and one handling shipping and receiving – while the rest are housed at a separate warehouse facility nearby, including about five people on shipping and another four who do nothing but put away parts. He also has 12 people manning the phones for wholesale and keeps 13 vehicles on the road between delivery vehicles and salespeople.
Greenhalgh has four wholesale parts salespeople on the road. In the early days of the wholesale operation, he started with a single salesperson who spent his days contacting collision centers and independent repair shops in the surrounding areas, “telling people the Seiner story—why it’s better, the features, advantages and benefits of doing business with Jerry Seiner … You’ve got to get an audience with the decision-makers at these businesses and then give them a reason to buy from you,” he said. “What we try to focus on first is of course the customer service angle and how quickly we can get [a part] to them.” Today, the wholesale operation of Jerry Seiner Chevrolet has customers in not only Utah but four other nearby states. Greenhalgh estimated that his salespeople probably have 10 overnights per month while on the road.
He stressed that the wholesale parts business, much like selling cars, is about establishing and maintaining relationships. While the salespeople on the road do have regular contact with clients, the strongest client relationships are forged by the parts employees manning the counters and phones at the warehouse. “This is very much a relationship business with our customers,” he said. “Our counter guys and the customers get to be really good friends because they call almost every day.” Greenhalgh said they do not assign accounts to each employee. “The customer gets to decide who he likes. We have one phone number that we publish for the customers to call in on, and once they have a relationship with a counterman, they have their own direct dial numbers.”
He said they try to make it easy for customers to communicate with them, whether it’s by phone, fax, e-mail or otherwise. Customers are able to order parts online, although Greenhalgh said that not many wholesale orders come through the parts page of the dealership’s website. “That’s more for a retail customer who has a specific request,” he said. Many wholesale customers utilize OEConnection, an online parts supply solution established as a joint venture of several vehicle manufacturers. “That’s another way to communicate with us,” he said, although he clearly preferred being able to maintain relationships with clients through live interaction. However, he acknowledged, “There are some businesses that just want to point and click, so we just try to make it easy. Whatever way you want to communicate with us, that’s what we do.”
Vol. 8, Issue 4