Dispelling Parts Department Myths

Oct 14, 2012 | | 17461 |

Dispelling Parts Department Myths

By Melody Anderson, ADP, and Bruce Gamble, M5 Consulting

Originally published in Fixed Ops Magazine September/October 2012 Edition

If you’re reading this magazine, chances are you know the basics. The credo of the Parts department is, “right part, right price, right time.” And yet, many dealerships we talk to have the same problems over and over again: either they can’t manage to reduce their obsolescence or they can’t seem to get their wholesale Parts business under control. So, we wanted to take a little time to dispel three common myths we’ve seen in Parts departments around the country.

Myth 1: The Parts department has nothing much to do with the everyday dealership customer.

Somewhere in the history of Parts and Service departments, someone came up with the idea that Parts, since it isn’t always directly client-facing, has nothing to do with the loss and retention of dealership customers.

Think about this: a vehicle salesperson spends an hour, a week, maybe even a month working with a single customer to sell them a vehicle. The Parts and Service departments then get that customer for at least three years during the warranty—a time that can either confirm to the buyer that they made the right choice of vehicle, or turn them off to your brand and your dealership for good. One mishandled situation could lead to the loss of a repeat Service customer and possibly the loss of a repeat vehicle buyer.

What’s a mishandled situation? It could be as simple as a customer coming in for work on their vehicle and the Parts department not having the right parts on hand to fix the car. This can frustrate your customer, increase their wait time, and usually results in them being disgruntled, losing the opportunity to sell any additional customer pay work.

Solution: Treat your Parts department like Service and make it focused on customer experience.

The Parts department seems to have been forgotten in the dealership. This is mostly due to parts being a consequence of labor. Having shelves full of in-demand parts means nothing if you can’t drive customers to the Service bays to actually utilize them. That said, your Parts department should not be the “crutch” of your Service department. That is, the Parts counter should never be viewed as an excuse for a hold-up in Service. The Parts desk should be well-staffed and move quickly and efficiently to meet the needs of Service.

Myth 2: The only business in a dealership you can truly manipulate is wholesale Parts sales.

It’s been a recent trend in many dealerships to start selling excess parts in the wholesale market to third-party, independent shops. This has proven to be profitable in some locations, but a total flop in others. What explains this contradiction? That wholesale might not always be the answer. Yes, it should be leveraged, but not at the expense of selling to your best customer, the Service department. 

If you have a busy wholesale business, look hard at the numbers and make sure it’s a profitable business to be in. Selling parts in the wholesale market involves a lot of upfront costs and initial capital investment, with the potential to never make anything back.

We like to think about it in terms of basic economic theory. There is a big demand for wholesale parts, but there is also a big supply. This means that the place selling the cheapest parts will get the independent shops’ business. Therefore, a dealership has to have the lowest markup possible of a given part in order to sell it competitively. With a low markup comes a low profit per part. To have a successful wholesale business in a competitive market usually means you have to sell high volumes at a low margin.

Solution: Wholesale is effective, but not the only solution.

Look hard at your numbers and make sure you’re not selling low volumes at low margin. Consider leveraging advertising to a global audience to aid in selling at higher volumes. Meaning, if you are selling parts at low volumes and are determined to remain competitive in the wholesale market, take advantage of advertising and marketing your inventory via the Internet to get the largest return on your investment. Remember, your best customer, your Service department, should be your top priority.

Alternatively, we have found that you can make almost twice the profits if you sell your parts to your own shop. There’s a greater likelihood that you make a better margin for a better per-part profit. This does come with two caveats: one, you cannot mark up your parts to a ridiculous level and push yourselves above other Service shops in price, and two, you need to then stock your Parts department as intelligently as possible. Also, look to your OEMs. Many of them are considering a program to help you locate parts, as well as market the parts you want to sell, like PartsVoice. Using a system like PartsVoice allows you to locate parts and market the ones you have to other dealers. This in turn can help increase volume without necessarily meaning buying more parts to support your wholesale business.

Myth 3: Obsolescence and having lots of Special Order parts is just part of the game.

Unfortunately, obsolescence and special order parts are intimately tied together. We know you cannot do away with either one completely. However, we do think many dealerships can benefit from reworking their Parts department to slim down those stagnant items and abandoned special orders as much as possible. It is always easier to order a part than to get rid of it. This is a fact of Parts department life.

Solution: Yes, obsolescence exists. But, it doesn’t have to be unmanageable.

The first way you can improve on your obsolescence stats is obvious but often overlooked. Use your OEM’s programs for Parts returns. In this case, we’re not just talking about warranty Parts returns, either. Take for example, GM’s Retail Inventory Management (RIM) program. In their program, after 15 months of no sale on a part, a dealership can return the part to GM and recoup the dealers’ original investment. Sounds like a worthwhile deal to us.

Another simple fix for an obsolescence problem is to track the parts you don’t have as lost sales. Many DMS systems now include the functionality to record when a Parts department doesn’t have a piece and then record it as a lost sale. We recommend that if you see more than three “lost sales” on a given part that it might be time to consider incorporating a small order of this part in the future. This simple step can lead to finding hidden demand quickly, with little work on your part.

Also, if a part has been taking up space on your shelves for over a half a year with no sales, it’s time to phase it out. Take a look at some of the programs on the market that help you sell your idle inventory and get out from under an obsolescence problem. Or try advertising or locator services that help you move unique, special order parts, as well as more widely used parts. There are often enthusiasts and do-it-yourselfers who are looking to buy at a good margin.

We opened this article by saying that if you’re reading this magazine, you probably know the basics. But take a look at your business, and ensure none of these myths have taken hold in your Parts department.

Melody Anderson, ADP, and Bruce Gamble, M5 Consulting