How do I Improve Gross Profit from my Parts Department?
Improving Gross Profit from Parts
Most everyone has heard of using a parts matrix pricing program to improve gross profit margins. Over the years I’ve seen some programs that I thought were excessive and others considered reasonable. My feeling is that gross profit on parts being installed on customer pay repair orders should be around 42%. If your dealership is below that consider reviewing your matrix pricing program.
Good Margins
I feel dealerships must have good margins to offset the difficulty in returning items purchased in good faith from the manufacturer. This frozen capital aged inventory ends up a huge cost for the typical dealership and must be offset by good gross profit margins. How you achieve good gross profit margins affects customer retention in service if done too aggressively.
Aggressive Pricing
I have seen dealerships that were advised to take their cost times 200% on every item that goes on a customer pay repair order.
This aggressive pricing creates problems with the customers that check pricing at the local auto parts store or another dealership, finding that you are much higher priced than them. This aggressive pricing practice will create distrust for your dealership.
Extra Effort = Best Practice
Best practice remains using a good better best pricing philosophy that might include aftermarket items. Although this does take extra effort it will remove the concern of a customer that they might be dealing with a crook. When the dealership quotes an alternator replacement at $700 and the local auto parts store sells it for only $250, there is no way for the dealership to look good even if no matrix pricing program is in place. Normally customers will check the pricing on the higher valued parts over $150 and not be concerned with items below that number.
Good Better Best
Consider setting up your matrix with higher pricing margins on lower priced parts and going to standard list pricing on items over $150. It is my suggestion that your dealership also consider internal parts pricing to be at retail matrix adjusted cost. This will allow the dealership fair parts gross profit margins and provide more options for dealing with frozen capital in their departments. If anyone would like more information on matrix pricing feel free to contact me personally.
Rob Gehring, President
Fixed Performance Inc.
1-888-205-8718
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7 年Very good comments, i will keep it simple, pay attention to your customers not the numbers. Over many year of training parts and service dept i have seen the frustration in customers. Give quality and money will follow or you will run around cutting the corners and trying to meet the numbers.
Parts and Service Director Honda of Altoona
7 年I agree on many comments, but I believe we missed a large opportunity , used vehicle part sales, most stores sell these parts at very low mark up if any to save the used car department money that they turn around and sell for a profit - if you buy a vehicle at the correct price , you should get retail parts and service when correcting needed items.
Golf for Beginners - Retired Fixed Ops Director - now golf instructor at Golf for Beginners.
7 年Don't be afraid to walk away from some wholesale business if you are spending too much time chasing money. I would suggest that once a wholesale client goes over 45 days one time, make them COD. Body shops that constantly return parts for credit should also be scrutinized. You may find it's costing you more than the small profits you make. Charge a re-stocking fee if the returns are excessive. As Mike said, in most states, the manufacturer is required to pay retail for warranty parts, but you have to request it. They won't do it on their own. Lastly, train your counter people on "show and tell" with displays of aftermarket to OE parts. We all know you get what you pay for.
Automotive Fixed Operations Coach with 35+ years experience ? #fixedopscoach
7 年I don't claim to be an expert on parts but is this conversation similar to what service departments did for a long time that created that huge monster "aftermarket shops". To me selling over list price is no different than charging either too many hours for a job or using grid pricing for the labor charge. Since the aftermarket business continues to be a huge thorn in our side especially on the service side why do we want to go down this path? Having the manufacturer pay list price on warranty parts is a start, how about sticking to list price on internal and customer pay. What I've seen is the huge discounts and skinny margins we give away chasing wholesale customers so that they can continue trying to take away more customers from the dealerships. I'd love to hear everyone's opinions on my two cents.
Fixed Operations Consultant to the Industry
7 年Extreme matrix pricing results in excessive discounting because counterpeople and ASM's don't buy into it, and rightly so. Also, jumping all over low cost parts helps the % but doesn't put much cash in the bank and can create customer issues with $5 hardware. There are other solutions.