July 2025: Managing Parts Department Expenses

As we move on into the second half of the year, and as a follow up to last month's issue of ACG "Smart Parts", we will take it to the next level along with our "Parts Department Insurance Plan" by adding some Parts Bottom Line "Protection".

Even though we may do a great job on Parts Sales & Gross Profit, all that effort may just go by the wayside if we are not managing our Parts Department Expenses. We also have to keep in mind that in Parts, we are responsible for our portion of the overall dealership's "Fixed Absorption" Percentage.

The Parts Department is responsible for 25% of the Total Fixed Absorption Percentage if we have a Collision Center, and 20% if we do not have a Collision Center based on Industry Guidelines.

Even though these Absorption Percentages are based on Parts Gross Profit, we have a dual role here as we are not only responsible for this Absorption Percentage, but we are also required to have a "Net Profit" of up to 40% or even higher depending on the Manufacturers' Industry Guidelines.

This means that the Parts Department, by percentage, should be the highest "Net Profit" department in the whole dealership. A huge responsibility for "Smart Parts" Managers and we cannot achieve these numbers without controlling our Parts Department Expenses.

In this issue of ACG "Smart Parts", we will focus on protecting our "Parts Bottom Line" by managing those Parts Expenses that are in our control. All dealership departments have expenses that may be "out of our control", which are usually "Fixed Expenses" and maybe even some "Semi-Fixed Expenses".

Not only do we have many of these Parts Department Expenses in our control, but there are also many Parts Department "Unseen" expenses that we may not be aware of. Many of these Parts Department "Unseen" expenses can also highly impact the Parts Bottom Line as well as the dealerships overall Bottom Line.

Question is...

"What Parts Department "Seen & Unseen" Expenses should we be focusing on and how can we bring them to the surface?"

Once Again "Smart Parts" Readers!...Let's Get Started with our "Top 5 Parts Department Controllable Seen & Unseen Expenses!"

As mentioned, there are many Parts Department Expenses that may be out of our control which are usually Parts Fixed Expenses. There are also some uncontrollable Semi-Fixed Expenses, as well as some overall Dealership "Allocated" Expenses depending on the Manufacturer.

Let's get started with our Top 5, and as in last month's issue, they will be listed in no particular order, but we will save the best for last with our "Unseen" Parts Department Expenses that may be impacting the Bottom Line.

Here We Go!

Parts Personnel Expense:

In order to control the overall Parts Department Expense, we first have to look at some Industry Guidelines. There are some key guidelines that will help us manage this overall expense even though we do not control many of these Personnel Expenses.

Personnel Expenses such as Owners Salaries, Employee Benefits, Taxes and Absentee Compensation are just a few that will just be there each and every month. This means that we have to look at the overall Parts Department "Expense to Gross" Guideline which is usually between 30% - 35% depending on the Manufacturer.

The only way to hit these "Expense to Gross" Guidelines is to either increase Parts Gross Profit or reduce Parts Department Personnel Expenses. That being said, we need to first look at the total number of Parts Employees with a second set of Industry Guidelines.

To determine the right number of Parts Employees, Industry Guidelines indicate this total by both Parts Sales & Parts Gross Profit per Employee. On the Sales side, the number is $55,000.00 in Sales per Employee for Domestic Dealers and $70,000.00 per Employee for Import Dealers.

On Gross, the numbers are $20,000.00, (domestic) per Parts Employee, and $22,000.00 - $25,000.00, (import) per Parts Employee. The reason we have both the Sales & Gross Guidelines is that we may have high Parts Sales Numbers, which would dictate more Parts Employees, but due to high Parts Wholesale Sales Numbers, we still may not meet the "Gross Profit per Parts Employee" Guidelines.

Even though some Manufacturers do not really measure the "Parts Personnel Expense to Gross" Percentages of 30% - 35% due to their Financials measuring "Allocated" Personnel Expenses. We can still measure the right numbers of Parts Employees by these Sales & Gross per Employee Industry Guidelines.

Parts Advertising Expense:

This "Semi-Fixed Expense" should be anywhere from 2% - 4% as far as "Expense to Gross", again, depending on the Manufacturer. The reason we need to watch this expense account is that there usually isn't that much spent on "direct" Parts Advertising per say.

That being said, the Parts Department may share in some Total Dealership Advertising Expense, which all departments participate in. Unfortunately, I've seen in many dealerships the Parts Department may just be sucking up more of these Dealership Advertising Expenses than they should.

Even though this is a decision made from upper management, or ownership, it is not unusual to see the Parts Department paying more than their fair share. One reason may be the fact that the Parts Department usually has the highest "Net to Gross" Percentage in the dealership as mentioned earlier.

Parts & Service Advertising is definitely a shared advertising expense that we often see due to Service Promotions, Coupons and Specials that will help drive Service Lane Traffic. It is extremely important that the percentage of this "shared" Advertising Expense is "fair" based on how much total gross each department generates.

Another Parts Advertising Expense may actually be the discounts that are applied to these Service Lane Promotions. Some dealers will actually apply these discounts against Customer Pay Gross, thus lowering the Parts & Service Customer Pay Gross Profit.

This is also a decision that the dealer will make along with the Accounting Department, but we have to be careful when we charge back these discounts to Customer Pay Gross Profit. When these coupon discounts are charged back to gross, it is much harder to track as these discounts, or "costs" as they get swallowed up in what I call the "sea of gross".

When these "direct" Advertising Expenses are in fact charged to an Expense Account, it is much easier to track and compare them to Industry Guidelines. In my opinion, the actual cost of the Advertising Expense should be charged to Advertising Expense and tracked monthly.

Parts Freight & Shipping Expense:

This Parts Expense can obviously vary from dealer to dealer depending on wholesale sales, delivery expenses with the number of delivery drivers, outside delivery services, or even warehousing costs. 

We could also include "Parts Return Fees" into this category as repacking fees, damaged parts, and Manufacturer Return Fees can highly impact this Parts Expense. There will always be Parts Returns, much like Amazon or any other online retail outlets, as there is always a cost of doing business.

We have to have a policy that will "recoup" some of these costs from our customers, or even the dealerships' Service Departments and Collision Centers. There especially has to be more accountability on who's really responsible for these return costs.

Although, it's always easier said than done as many Parts Managers out there do not want to mess with their so called "good customers" that buy a lot of parts each month. In my opinion, we need to do our research to see what other dealers are doing about return fees to remain consistent and competitive.

You may be surprised but there are actually many dealers out there that are charging for delivery fees, return charges, repackaging fees and late fees for untimely monthly payments. We just seem to assume the negative at times when we really don't know until we do the research.

In my opinion, especially in our own dealerships, the person or department that is authorized should be responsible for the initial Parts Special Order "cradle to grave". They should also be responsible for any return or restocking fees. It should not be just assumed that the Parts Department pays for the cost of returns, or the burden of potential obsolescence.

Parts Data Processing & Outside Services Expense:

I kind of "looped in" two actual expense categories here as some dealers will use either one or the other depending on their particular preference. Either way, they both include outside companies that charge the dealer for their product usage or services.

This expense category may also be called "Information Technology Services" on some of the newer Financial Statements. Ultimately, these two expense categories usually include the Parts Department's share of the monthly DMS Fees, Parts Catalogues, Electronic Estimating Programs and perhaps even E-Commerce Fees to name a few.

Even though these expense categories could be referred to as "Fixed Expenses", they are still considered "Semi - Fixed Expenses". We do have a degree of expense control on these two in the way of making sure the expense allocations are fair, especially in the monthly DMS fees.

Controlling as a matter of "awareness" is most important and not just "assuming" that these expense entries are accurate each month. We need to follow the monthly trends to make sure we don't see any unusual "spikes" due to Accounting changes or entry errors.

We also need to do an ROI, (Return On Investment) breakdown on some of these Outside Companies to make sure we are getting our "bang for the buck". There are still many new "flavors of the month" companies out there that may tease us into buying some new computer program.

It's a fact that our own DMS Utilization Factors are at a stunning 20% - 25% and we can easily get sucked into some new computer program out there. Only to find out that we could get the same out of our own DMS, but just didn't know.

Parts Department "Unseen" Expenses:

As our Number 5, we wanted to save the best for last as these Parts Department Expenses will not be found on any Financial Statement. Even though they are technically "Unseen", you can be assured that they are out there and affecting the "Bottom Line" monthly and especially by the end of the year.

Parts Acquisition & Holding Costs are one of these "Unseen" Parts Expenses. There is actually a cost of acquiring and holding Parts Inventory. If you were to "Google" Acquisition & Holding Costs, you would see that the average "cost" of holding any inventory or retail commodity, the costs are anywhere from 25% - 30% of the total inventory value.

Handling the parts, Physical Inventory Costs, Asset Insurance, Damaged Parts, Building Rent and Warehousing Equipment are just a few that fall into this Acquisition & Holding Cost Percentages. That being said, holding Parts Obsolescence can just add to these costs each month and year.

We know that these Acquisition & Holding Costs are there, we just have to make sure that we are "turning" the Parts Inventory at Industry Guidelines. We also have to make sure that we are not carrying too much in the way of "excess" inventory and of course, parts obsolescence.

In other words, if we were still carrying approximately $100,000.00 in Parts Obsolescence, it is actually costing the dealer $25,000.00 - $30,000.00 a year just to hold those parts that will never eventually be sold. Again, you will not see this expense on any Financial Statement.

Another "Unseen" Parts Expense is lack of proper training in the Parts Department. If you drill it down, dealers for the most part, do not invest in Parts Department Training compared to other dealership departments.

Instead of spending the money on training the right, qualified Parts Employee that we already have, often times we just add more Parts Staff. Adding more Parts Staff to make up the difference for lesser trained employees can also add to this "Unseen" personnel expense.

It also doesn't go over well with the dealer when we simply say that we need more help to get the job done. Long lines at the Parts Front & Back Counters can be justified if we don't have enough Parts Staff based on the above Industry Guidelines, but if we are "under-trained" in Parts, that's a different story.

For the most part, the qualifications for hiring Parts Department Staff are minimal at best, especially for Parts Counter Staff. The lost productivity to the Service Department is also "Unseen" as technicians are waiting longer to get the right parts due to lack of proper Parts Training.

Lost Sales Reporting may also be affected due to lack of training and/or accountability. They need to be trained and informed on the proper definition as well as tracking their Lost Sales Reporting Performance daily. Most importantly on Lost Sales Training is explaining the actual purpose and reason why we report them in the first place.

This "Unseen" expense goes even further for Parts Managers as proper DMS Set Ups & Controls are incorrect based on the math. This Parts "overlook" leads to low "Parts First Time Off Shelf Fill Rates" thus reducing Service "Cycle Times" waiting for or chasing parts we perhaps should have had on the shelf "the first time".

We just "assume" that the math in the DMS is correct, but unfortunately, many, if not most of the DMS Trainers/Installers don't even know the right math. The initial Parts Set Ups & Controls initially installed are "cookie cutter" at best and don't follow basic math, which is irrefutable.

Keep in mind and don't misunderstand that we are not blaming the Parts Manager as it is more the question of "How Do We Know What We Don't Know?" Most Parts Managers that I have met are very intelligent, as it's mostly due to the fact they haven't been trained or informed about the math that could increase the "Parts First Time Off Shelf Fill Rate".

Unfortunately, in many Parts Departments today, the dealers have more of the parts they don't need and not enough of the parts they do need as far as inventory "breadth". This is also why Parts Obsolescence overall is at an all-time high.

It's hard enough these days where Parts Coverage, or the "Life Cycle" of a part is lower than it was years ago. The "Life Cycle" of a part 20 or 30 years ago used to have a nice "bell curve" during its Life Cycle. Today, it's more of a "sharp spike" up and then back down for 6 - 8 months and then the part is on its way out, dropping into the obsolescence category sooner than ever before.

Having the right "Parts Insurance Protection Plan", (last month) and "Managing Parts Department Expenses", (this month) is the best combination a "Smart Parts Manager" can have in achieving Predictable Results each and every month.

Last Question...

"Is Your Parts Bottom Line Insured, Protected and Covered?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

....

June 2025: "Do You Have a Parts Insurance Plan?"

As we move on into the second half of the year, our June Issue of ACG "Smart Parts" will be focused on getting the most out of our Parts Department. It doesn't really matter how big or small, or the number of sales or the number of employees. 

Even though we all want to get the most out of our Parts Department, wouldn't it be great if we had a Parts Insurance Plan? In other words, if we had a "Parts Insurance Plan" that would lead to predictable results in getting the most out of our Parts Department in Key Performance Areas, we would never have to worry.

The only difference between a "Parts Insurance Plan" versus other insurance plans such as auto insurance, homeowners' insurance or even life insurance is that there is no monetary payout per say if the insured has to be compensated for any coverage reasons.

Although there are huge monetary "benefits" from having the right "Parts Insurance Plan" that will pay dividends for as long as we are covered and following the "Parts Insurance Plan" guidelines.

So, for the sake of conversation, and content of this month's issue of ACG "Smart Parts", we will refer to our topic as "Parts Insurance". Some may wish to call it a Parts Protection Plan, but the overall goal will be the same.

We will focus on getting the most out of our Parts Department while protecting the dealers' number two asset, right behind the Used Vehicle Inventory. We will also dial in on our "Top 5 Parts Insurance Protection Categories" which will give us more consistent, desired results each and every month.

The markets and the economy may swing up and down, but our "Top 5 Insurance Protection Categories" flow with the current market trends as well as the economy. Again, it's more about getting the most out of our Parts Department, no matter what's going on around us. As I've said many times..."It rains everywhere, and we all have to deal with it"...

We don't always control where our sales come from, but we do control the outcomes in all of our "Top 5 Insurance Protection Categories" which will be the topic of this month's issue of ACG "Smart Parts".

"So, How Can We Protect Ourselves and Ensure That We Are Getting the Most Out of our Parts Departments?"

Let's Get Started!

Much like in any Insurance Plan that we may currently have, we all have a desired level of protection that we are looking for in case something should happen. Having a Parts Insurance Protection Plan is similar, but different in some ways.

In regular Insurance Plans that we may currently have, we are protecting ourselves from the "unknown", where in our "Parts Insurance Protection Plan", we are protecting ourselves from the "known", less than desired results.

Our "Parts Insurance Protection Plan" will involve five key areas that require a specific plan in order to prevent less than desired results while ensuring we achieve our overall goals each and every month.

As we move on through our "Top 5 Insurance Protection Categories", we will detail, (not in any specific order) what it will take make us "bullet proof" to normal, outside market and economic issues. Even though there are really no guarantees in life, especially catastrophic events that are out of our control.

Here We Go!

Gross Profit Insurance/Protection:

Believe it or not, ensuring that we attain industry guidelines on Customer Pay Parts Gross Profit is for the most part, totally in our control. As I mentioned, we may not always control where our sales come from, but we should be controlling how much we keep.

Even though Warranty Parts Gross and Internal Parts Gross may not be totally in our control, we can always control our overall Parts Gross Profit with the right Customer Pay Parts Matrix and the right Customer Pay Competitive Parts Pricing Strategy.

The Parts Gross Profit Protection comes into play if we are maintaining and/or modifying these "controllable" Parts Gross Margins on a more consistent basis. We should be monitoring Parts Grosses daily and not waiting until the end of the month to see that the results were less than desirable on the Financial.

It's also okay to "tweak" the "right" Parts Cost Plus Matrix three to four times a year to adjust for price changes, market swings or even lower Customer Pay Parts Grosses for bigger ticket items such as Powertrain or Electronic Parts that do not have the Matrix applied and are usually sold at MSRP.

We need to be looking at discounting, overrides, or even outside influences that may affect the eventual outcome on the Financial at the end of each month. We, in Parts, are ultimately responsible for the gross outcome each month.

If our dealer trusts us to achieve these gross profit gross margins, then they should be giving us total control, unless overrides are approved by upper management. If we are not monitoring our gross profit percentages daily, then don't be surprised if the results at the end of the month are not what we expected.

Parts Asset Insurance/Protection:

In Parts, we are responsible for the dealers second highest asset next to the Used Vehicle Inventory. In some dealerships, the Parts Department Inventory is the highest asset. That being said, we have a huge responsibility in "turning" this Parts Inventory at Industry Guidelines or better.

Gross and True Turns are huge indicators on how well this asset is performing. Parts Obsolescence also plays a big part in the Overall Gross and True Turns. Keeping Parts Obsolescence at a low amount, (0% - 5%) will keep this asset turning at Industry Guidelines.

One of the biggest "Asset Insurance/Protection" Policy Guidelines has to include dealing with Parts Obsolescence on a monthly basis. We cannot afford to let it build to a point of no return. If we deal with it at Month 13, we have a better chance of keeping it clean at all times.

In order to have the right Parts Asset Insurance Protection Policy, we have to make sure that the asset is "self-protected" and "insured" by keeping the Parts Inventory active within a twelve-month period. If we do that, we will always be protected, ensuring that the Parts Inventory is "liquid" and retaining it's value.

Parts Employee Insurance/Protection:

Here's one of our "Top 5 Insurance Protection Categories" that often goes undetected. We all know, especially in these times, that finding and retaining good employees is harder than ever.

Once we have an employee that is performing at expected levels or even higher, there is absolutely no reason that they should be looking elsewhere. Quite simply, all employees want to belong to something and to be a part of something.

Most of them want to grow and build their careers and want that path to grow their careers. That being said, we have to have a career path that provides them the proper training and goal setting opportunities.

One area that I feel is changing in our marketplace to the positive is the career opportunities in the field of trades. There are many opportunities for young people to seek their future goals in this field of trades that will lead to potentially a higher income level versus going to college for their bachelor's degree or master's degree in other fields.

In providing this career path, we have to have an on-going Parts Training Program that will allow our Parts Employees to grow. That means we have to compensate then accordingly with sales incentives to grow their careers. 

Parts Employees should have the same opportunities as technicians, salespeople or even other dealership management positions. Working in Parts should not be just another steppingstone to where they may eventually end up in some other field. We should be "grooming" them to grow to other potential dealership positions, if qualified.

First Time Fill Rate Insurance/Protection:

If there was one of our "Top 5 Insurance Protection Categories" that would yield the best results is this one. Quite simply and much like the Kevin Costner Movie "Field of Dreams", the saying would go the same.

As mentioned in the movie..."If You Build It, They Will Come", which would translate to Parts as..."If You Have the Part, They Will Buy It". Believe it or not, having the right part at the right time is the Number One contributor for increasing Parts Sales, which of course, Lost Sales Reporting is the key factor to increasing First Time Fill Rates.

Again, having the right part at the right time, (75%-85%) of the time doesn't have anything to do with the overall value of the Parts Inventory. It simply means that we provide that part, on a first-time basis of 75%-85% of the time.

I will say that if we achieve these levels, much of our Parts Insurance Protection will stem from this one specific category. Sales and Grosses will be higher, Service Productivity will also be higher, and Asset Protection will be higher and so on, no matter the sales volume.

That being said, in order to achieve these First Time Fill Rate Percentages, we have to have the right math and the right Set Ups & Controls in our DMS. If we do have a Manufacturer's Vendor Managed Inventory, (VMI), their settings would also be emulated by these proper DMS Settings, thus giving us better Stocking Levels on Qualified VMI Parts.

Market Penetration Insurance/Protection:

This is a big one as we all want to make sure we are getting our fair "market share" of customers. There are also many factors that contribute to maximizing our market share penetration, especially in Sales & Service.

We do play a big part in this from the Parts Side, especially having the right part at the right time as mentioned above. We have to do our part by not only having the right part at the right time, but we also have to be competitive. 

In partnership with our Service Department, we have to be first focused on Customer Retention, keeping our customers coming back. It doesn't make much sense to invest in all this advertising in order to gain new customers if we aren't taking care of the ones we have already.

Focusing on our current customers before reaching out beyond our customer base has to be a priority. Delivering the Customer Promise is the Number One priority in maintaining high Customer Retention, especially in Service.

The right number of skilled technicians with the proper training, trained Service Advisors that are focused on taking care of the customer are surely key factors in Customer Retention.

All that being said, and if we are doing all the above, we have to have a "market plan" that reaches out to all customers on our market area, not just those customers that have purchased New or Used Vehicles from us.

All of our "Top 5 Insurance Protection Categories" are designed and focused on achieving high Service Absorption Levels overall in Fixed Operations, which means of course that we have to be focused on Expense Management.

Insuring and Protecting the Parts Department does follow basic Insurance Guidelines as we all want to make sure that we are "covered" in case something happens. The only difference in my opinion is that we do have some control of potential outcomes versus outcomes that are out of our control in other insurance policies. 

One last thing, one of my dealers once told me that..."Continually working with ACG "Smart Parts" is the Best Parts Insurance a Dealer could have". Which, by the way, they are still with ACG "Smart Parts" for over seven years.

Accidents can and do happen as well as other events that may happen which may be out of our control, but to me, if we could prevent potential negative events and results from happening, we should act on it before it happens by having the right Parts Insurance and Protection Plan.

 If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

.....

May 2025: Parts Return Sales: "The Costs & The Effects"

As we move on into May, we will continue our theme that we shared in our April Issue of ACG "Smart Parts". In April, we focused on the "Costs & Effects" of what Dirty Cores represent. Now it's time to continue in May with the "Costs & Effects" of Parts Return Sales.

Parts Return Sales is also one of those areas that we have to deal with as it's just a part pf doing business, much like any other retail operation such as Amazon Prime, Best Buy, Lowe's, Walmart or even at the local grocery store.

Believe or not, there is an actual measurement here as Industry Guidelines has these Parts Return Sales set to 5% or less of Total Parts Sales at Cost. This measurement can be debated as some say the actual number should be 10% or less.

Either way, there is a measurement that we need to pay attention to monitor trends as there are many costs incurred from Parts Return Sales. The interesting thing here that I have noticed over the past couple of years is that the actual rate of Parts Return Sales is on the rise.

So, whatever measurement is used, we have to take notice and wonder why Parts Return Sales are rising in many Parts Departments today, especially in higher volume Parts Departments, although this rise has also impacted smaller volume Parts Departments.

We all seem to know the most popular reasons for Parts Return Sales such as the wrong part was ordered, didn't need the part, customer never came back and so on. All that being said, all these basic reasons for Parts Return Sales have always been there. Why now and why so many and most importantly...what are the costs for these increased parts returns?

In this issue of ACG "Smart Parts", we will break it all down again with our "Top 10 Impact Areas" that are driving not only Parts Return Sales, but we will also break down why the increase over recent months and years.

The real question is....

"Why are Parts Return Sales Rising & What are the True Costs & Effects?"

Let's Find Out!...

First and foremost, let's look at the overall picture of our daily operations as we all know that parts will be returned at times and for various reasons that we have mentioned. But what we don't always look at is how often they happen because we just go on with our daily routines.

Of course, many if not all Parts Departments have some guidelines on returns whether we charge return fees, or maybe not allowing parts returns on electrical parts or Special Order Parts and perhaps requiring deposits or pre-payment.

In my opinion throughout all this is that many Parts Managers don' even track their rate of Parts Return Sales. We also have to first define Parts Return Sales as in many Dealer Management Systems, (DMS) simply taking a part off a Repair Order can trigger those parts into the "Return Sales" category on the DMS Monthly Management Reports.

Even though the sale never happened as the part was taken off the repair order for other reasons such as billed to the wrong RO, billed to the wrong line on the RO or the wrong quantity was billed out, it still may trigger a Parts Return Sale on the DMS.

Beyond all these normal transactions that we all deal with as mentioned above, it's now time to look further and find out why these "actual" Parts Return Sales are climbing and what are the true "Costs & Effects" of rising Parts Return Sales.

We will break down our "Top 10 Impact Areas" that will reveal either the cost and/or the effect on the overall results of Parts Return Sales and how they impact the Financial Statement or Overall Inventory Values. 

Acquisition & Holding Costs:

We will start all this off with one of the "unseen" costs of what Parts Return Sales can impact. Parts Acquisition & Holding Costs will not be found on any Financial as these costs are assumed at a rate of 25% - 30% of the Annual Parts Inventory Value like any other Retail Companies that resell goods to the consumer.

These Acquisition & Holding Costs include handling of goods, (or parts), building rent, inventory insurances, heat, power & lights, advertising, depreciation, etc. in order to maintain the parts inventory.

Parts Return Sales fits into this category immensely, especially in the handling of goods category, restocking fees, damaged goods and so on. Parts Return Sales, if in access, can drive these Acquisition & Holding costs even higher than the average.

Manufacturer Return Fees: 

Even though manufacturers vary on what they charge dealers for parts returns, this cost is usually absorbed by the Parts Department which has always amazed me. Especially in the Service Department and in our Collision Centers.

Even though these Return Parts Sales were initially authorized by these other departments, when they are returned for whatever reason, didn't need or the customer never came back, the Parts Department sucks it up and ends up paying these return fees.

In my opinion, whoever authorized the Parts Special Order is ultimately responsible for the Parts Return Fees implied, unless the wrong part was ordered by the Parts Department. In the case of GM, Parts Return Fees can add up to 35% of the cost of the part.

These return fees should be charged back to the department and/or a portion of the Return Fee be charged the actual individual that authorized the Special Order in the first place. Even a small portion to the individual sends a message and results in fewer returns.

Collision Center Parts Return Sales:

Dealership Collision Centers are a huge contributor to higher Parts Return Sales and for good reason, but they have to take more responsibility for these Parts Return Sales. In their defense, they have to work with Insurance Companies, Supplements, Unseen damaged parts and so on.

That being said, there are ways to recoup some of these expenses that are incurred from Parts Return Sales. Especially if a vehicle ends up being totaled and all the original parts are still sitting there, many Insurance Companies will pay these return fees charged by the manufacturer as well as internal handling fees.

It just seems to be always "assumed" that the Parts Department sucks it up again and pays for these parts returns. Collision Parts ordered in excess, or perhaps "just in case we need it" should also be addressed.

Service Department Return Parts Sales:

Parts Return Sales in the Service Department don't usually add up to the what the Collision Center returns in cost, but as far as the number of Parts Returns Sales in the Service Department...they can be staggering for many reasons.

Parts ordered in error, no matter whose fault, parts ordered "just in case", customer never came back, didn't fit right, etc....the lists goes on. The bottom line is that all these reasons add up to Parts Return Sales.

Most often times, these Return Parts Sales end up on the shelf and eventually just adds to Parts Obsolescence. "Just put it back on the shelf and we will sell it to someone else!", or..."Just send it back!"

Not that easy as in most Parts Departments today, they can never accrue enough Return Reserve from the Manufacturer to even match the number of parts that get returned from Parts Return Sales.

As I mentioned earlier, there has to be some accountability, or "consequences" in place with an Internal Parts Special Order Policy. Someone has to pay, but it shouldn't always be the Parts Department as ultimately, it's the dealer who is paying.

Wholesale Parts Return Sales:

This is the big one as unfortunately there are many Wholesale Collision Centers out there that are surviving solely on our Parts Departments. Especially if these Wholesale Collision Centers are in the 30-, 60-, or 90-Day Accounts Receivables Category.

This is not anything new as for years, many Wholesale Collision Centers will order parts that are approved by the Insurance Companies, only to repair the fender and return that fender to the Parts Department for credit.

I have actually witnessed Wholesale Collision Centers keep up with their Monthly Parts Bill from the dealer with Parts Returns. This has gone on for years and the only way to stop it is to charge shipping and handling fees, no matter how we may feel, thinking that they are a "good customer".

There are actually many Dealership Parts Departments doing what I would be doing today is having all my Wholesale Collision Centers pay by credit card right up front. This way the payment is received up front, and shipping and handling fees can be applied when applicable.

Smaller Wholesale Collision Centers that cannot utilize a credit card for payment for credit limit reasons can be put on a 30-day credit limit only, if qualified and with a background credit check. After 30 days with non-payment, they would be cash or check only at that point.

Damaged Parts/Repacking Fees:

We all know that pretty much every manufacturer has some sort of added fees for damaged parts and repackaging fees. This one is also a big one as we all know the process of applying for credits takes months in some cases.

We also know that denied credits is another nightmare as it also trickles down to Parts Reconciliation with Accounting, sending inventory variances skyward. The timeliness of Parts Return Sales has many negative effects as prices are everchanging.

By the time we actually receive any credits for these Parts Return Sales, the price we paid when we bought these parts have changed, minus any other fees from damaged parts or repackaged parts. Any of these fees should also be passed down to the party responsible for ordering them in the first place.

Parts Wholesale Gross Profit:

Many of the Higher Volume Wholesale Parts Departments gain most of their profits on the backside for the manufacturers, especially today. That being said, it tends to cause what I call the "push and pull" affect, or a huge juggling act.

In order to receive this back-end money from the manufacturer, we have to maintain purchase amounts to qualify for the maximum discounts and allowances available. The "push" side comes from our purchases and the "pull" comes from getting the money in.

When we factor in the up front and back-end money, we have to come to a balance of total gross and net profit that meets or exceeds industry and dealer expectations and guidelines. If added costs are factored in that we mentioned above, we will not receive the expected net profits overall.

Obsolescence From Parts Return Sales:

We all knew that this one was coming as Parts Obsolescence is "the pit" where everything will end up and hide. If you look back to all of our reasons mentioned above that cause Parts Return Sales, we cannot think that there won't be a negative effect on Parts Obsolescence.

Parts Obsolescence is where the evidence becomes proof of how well we manage the Parts Inventory Investment. Even though Higher Volume Parts Departments have a better opportunity of protecting their parts investment due to higher purchase and sale amounts, obsolescence is still a huge concern.

Simply adding Parts Return Sales to the Parts Inventory is not a solution by hiding them on the shelf when they are returned will eventually show its ugly head. Dealing with them up front by charging these Parts Return Fees to the authorizing parties as we mentioned above is the best way to stay ahead of the game.

Managing Parts Return Sales:

As mentioned earlier, we all have Parts Return Sales, but are we inventorying these parts accordingly? We have to inventory these Parts Returns Sales and separate them from our Normal Active Inventory.

If these Parts Return Sales are Normal Stocking Parts, then they would of course be sent to their original assigned bin location. But if these Parts Return Sales are from the Special Order Category, they need to be "binned" or "housed" separately.

Special Order Parts Return Sales should never be given a Normal Stocking Part bin location as they will be "masked" as a Normal Stocking Parts. Parts with bin location are meant for Normal Stocking Parts and not "SPORD" parts mixed in.

They should also be "binned" or "housed" in temporary locations or bins that are viewable at all times to create awareness over a 30-day period and cycled through the return process each month.

Managing Parts Returns Measurement Reports:

Lastly, we need to be looking at our rate of Parts Return Sales each month to monitor trends. Whether you are at Industry Guide of 5% or less, or the trends follow a 10% or less Parts Return Sales Rate, we have to look at these trends like any other management trends we monitor.

We also have to factor in those parts on Repair Orders that were simple taken off the Repair Order for various reasons we mentioned earlier. Often times we may see our Parts Return Sales jump way up because we billed an engine on the wrong Repair Order.

The good news is, and if we are looking at these Parts Return Sales Management Reports, we will see when it happens and have the answers right up front as to why the increase happened in the first place.

In Closing:

As to the answer to our original question to rising Parts Return Sales, it's actually pretty simple. With the increased amounts of Vehicle Makes & Models, with the average numbers of parts in the Manufacturer's Pricing Guides, the chance of errors will rise in the order process and mistakes will happen.

One other reason, especially for Wholesale Parts Dealers, is that we tend to want to take care of our so called "best customers", only to find out that they are taking advantage of us and playing the game to their benefit and not ours.

Finally, the manufacturers are not making it very easy to receive our credits with added New & Dirty Core Value Parts Costs which makes it even harder to reconcile our inventories and gross profit percentages.

"Bottom line is that we need to follow these Return Parts Sales Reports just as much as we watch all of our other Parts Key Performance Indicators, (KPI's) as it takes much more today to manage our "true" Parts Gross & Net Profit Areas."

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

April 2025: Managing Dirty Cores: "The Causes & Effects"

As we enter into the Second Quarter of 2025 and keeping our focus on our overall goals this year, we want to add in one area that can and has impacted many of our basic Parts Department Duties & Responsibilities.

Our topic for this month's issue of ACG "Smart Parts" will be devoted to what I refer to as my new "Monkey on My Back" which is "Managing Dirty Cores". Managing Dirty Cores has become a big topic recently and one of my most "Frequently Asked Questions", (FAQ's) over this past year.

But before we get to our "drill down" in this issue, I want to take a look back on how we managed Dirty Cores in the past. Actually, it wasn't really too long ago when Dirty Cores were just another Duty & Responsibility or "routine" that we handled fairly easily each and every month.

Looking back, I remember that a "Dirty Core" was just a starter, alternator, transmission, maybe a steering rack or occasionally an engine. Also, the "Dirty Core Amount" was minimal where we may have paid $250.00 for a starter that had maybe a $50.00 core charge attached to the cost.

Fast forward to today, not only have "Dirty Core Amounts" sky-rocketed, the actual list of parts that have a "Dirty Core Amount" attached to the cost of the part have also expanded to more and more parts than ever before.

I also believe that these increased number of Dirty Cores and Overall Amounts can be attributed to Supply Chain Issues. If "supply in demand" goes up, then the "demand" of getting these Dirty Cores back for redistribution may be driving the price and number of Dirty Cores going up.

One of the biggest additions to the Dirty Core List is Collision Parts due to the increased awareness of the Manufacturers limiting Aftermarket Vendors from "counterfeiting" Collision Parts, which we never had back in the day.

By attaching a "Dirty Core Amount" to some of these Collision Parts, these Aftermarket Collision Parts Vendors, the Manufacturers will be able to limit access to these Collision Parts for "counterfeiting". 

On mechanical parts, these "Dirty Core Amounts" on some engines and transmissions for example have a "Dirty Core Amount" that is higher than the cost of the actual part. Some Manufacturers actually have "Dirty Core Amounts" almost double the amount, or cost of the part!

So!..."How do we "Tackle & Manage" this New "Monkey on Our Back" and just what are the "Causes & Effects" of Dirty Cores today?"

Let's Get Started!...

In my opinion, the best way to start off would be to separate the "Cause & Effect" before we get to the solutions. We will list out the "causes" first, then move on to the "effects" in each category. Then finally, we will move on to the solutions that may help us to either minimize or eliminate the effects by tackling the "root cause".

Dirty Core Cost "Causes":

Dirty Core Costs are out of our control with many Manufacturers adding in astronomical core charges that in many cases out-weigh the actual cost of the part. We have to realize that our "total" Parts Purchase Amounts from the Manufacturer will rise as well.

Another "Dirty Core" Cost Cause is Pricing Updates from the Manufacturer. For example, maybe we buy an engine for a cost of $4,000.00 with a "Dirty Core" value of $5,000.00 in a particular month and then, we bill the engine out the next month. 

The "Cause & Effect" in this case is when we bill the engine out the following month, the cost of that same engine goes down, (after the current month Manufacturer's Price Tape is updated) to cost of $3,000.00 with a "Dirty Core" value at perhaps $4,000.00, especially if this is a warranty situation.

The result is a loss of Inventory Value on both the Ledger Balance Inventory and the Controlled Inventory Balance in the DMS. It's sad, but this does happen and when it does, adjustments have to be made to both inventories to account for the asset loss and to keep reconciliation accurate.

It's amazing to me that we never see this situation go the other way when we perhaps see where the cost of that same engine actually goes up in value the next month with an even higher "Dirty Core" value. Resulting in a positive gain in the Ledger Balance Inventory and the Controlled Inventory Value in the DMS, or "Uplift".

Dirty Core Cost "Effects":

In many cases, and most recently, I had a dealer call me and wanted to know why his Parts Purchases were skyrocketing over the past few months. When I looked at their Parts Purchases in detail, they spent more money on "Clean Core Charges" than they actually spent the cost of these parts purchased.

Some Manufacturers are dealing with more powertrain issues than usual, thus the increased "Clean Core Charges" are added. This is where the "chain of events" gets started, which is on the initial purchase of parts that carry a "Clean Core Charge" of any amount.

Dirty Core Cost "Solutions":

Accounting is where we have to control these amounts from "cradle to grave" when we have the "Clean Core Amounts" eventually becoming a "Dirty Core Amount". We need to have better Asset Management and separate "Dirty Core Amounts" on Page 1 of the Financial Page.

Setting up a "Dirty Core Inventory" separately by adding in an Inventory "Sub-Account" is crucial. By simply adding in a 242C Account, (GM), or 14000C Account for Ford for example will help to keep this Core Inventory separate and easier to track and reconcile.

Another unique idea that I heard from one of my dealers on Warranty Claims that include a Dirty Core Charge, they bill the Dirty Core Amount to the Warranty Schedule, or Account 263C for GM dealers. This will relieve the Ledger Balance and Controlled Balance Inventory and move that amount to the Warranty Schedule pending credit.

Purchases on the P & A Summary can then be broken down on the actual totals purchased for regular parts, (242 GM, 14000 Ford) as a credit to the Parts Ledger Balance on Page 1. Then, the total amount of "Clean Core Purchases" can be entered in as a credit to the "Clean Core Inventory", (242C GM, 14000C Ford) separately.

When the "Dirty Core" is sent back to the Manufacturer, the credit on these Dirty Core Returns can be relieved from the Page 1, Ledger Balance Inventory on the Core Inventory Account. Variances can then be managed easier for Core Credits Outstanding due to Warranty Cores, Work-In-Process, or other Dirty Cores waiting to be return from Counter Purchases for example.

Once these "Dirty Cores" are sent back to the manufacturer, relieving the "Dirty Cores" properly on the DMS is also crucial for proper Accounting and Reconciliation. Simply sending the "Dirty Cores" back and not making the DMS Adjustments will send the Controlled Inventory Balance up.

As each "Dirty Core" is taken off a Repair Order for example, adds that dirty core value to the DMS Inventory. If not properly relieved, this "Dirty Core" Inventory on the DMS will just keep climbing and not be an accurate account of what may be stated on the DMS Parts Monthly Reports.

Another area that we now need to focus on more than ever is the dealers' "Clean Core Amounts" still in the Parts Inventory. Many, but not all Dealer Management Systems, (DMS) can provide this on-going amount each month on their Parts Monthly Summary Report and reported for Parts Reconciliation.

If the DMS does not provide this report as a "canned report", Parts Managers can create a "specific report" on the DMS on those parts on hand that carry a "Clean Core Amount". This will give the dealer a clear amount of how much their Parts Inventory Asset is tied up in parts that carry a "New Core Value".

This is especially important on those parts that carry a "New Core Value" and have not sold in over 12 months, (Over 15 Month, GM) become much more of an issue in the dealers' "Frozen Assets" and need to be dealt with.

The end result is that "New Core Amounts" that the dealer has already paid for is simply tied up in added Parts Purchase Amounts over and above the actual part itself. When shopping out obsolescence, these parts that carry a "New Core Amount" should be the top priority, especially if the dealer has a Collision Center and/or is heavy into wholesale.

Dirty Core Collision Parts "Causes":

If the dealer is heavy into Wholesale, and/or has a Collision Center or both, there are even more causes that "Dirty Cores" can represent. Briefly mentioned above with the effects of "New Core Amounts" that can impact Parts Obsolescence, the causes can go much further.

Dirty Core Returns are not only important for the Parts Department to manage on Service Repair Parts, but Collision Parts also must be managed even further. The timeliness of the return of these cores is critical. Especially when we are dealing with high Collision Center "Cycle Times" already, whether from our own Collision Center or Wholesale customers, time is our worst enemy.

Dirty Core Collision Parts "Effects":

Even though Wholesale Customers are billed a Core Charge once they are invoiced, the actual "handling" of "Dirty Core Amounts" can multiply and hinder timely "Dirty Core Returns" to the Manufacturer and harder to reconcile the Core Inventory on the Ledger Balance.

If we have our own Collision Center, these "Dirty Core Amounts" can multiply as well, thus tying up the dealers' asset and "cash", because that's what "Dirty Core Amounts" represent in the first place, much like Parts Obsolescence as a whole.

The "timeliness" of the Collision Center "Cycle Times" can affect the overall returns and credits of Collision Parts that carry a "Dirty Core Amount". If the Collision Center "Cycle Times" are over a couple weeks, it will have a "trickle down" effect on credits and overall, Ledger Balance Amounts.

Dirty Core Collision Parts "Solutions":

On top of working on the Collision Center "Cycle Times", the Dirty Core Return Process on these Collision Parts that carry a core value with perhaps have a dedicated parts employee that works directly with the Collision Center once repairs are authorized and completed.

On the Wholesale side of these Collision Parts that carry a "Dirty Core Value", credits to these Wholesale Customers on core returns should go hand in hand on with how well and how timely they pay their bills to the dealer. 

If these Wholesale Customers are frequently in the Over 30, Over 60 and Over 90 Day category on paying, then credits should, in my opinion fall into that same category. After all, they really aren't "good customers" if they don't pay in a timely manner.

This may sound a little harsh, but in my opinion, core credits to Wholesale Customers shouldn't indicate a timeliness of payments for parts purchases. If monthly payment is timely, then we should treat their core credits accordingly.

Industry Guidelines Dirty Core "Causes":

Some of the "Dirty Core Effects" actually impact a lot of Industry Guidelines that we monitor each month and year on Parts Key Performance Indicators, (KPI's). Areas such as Parts Gross Profit %, First Time Fill Rates, and Gross & True Turns and Work-In-Process and Obsolescence Amounts just to name a few.

Being that "Dirty Core Amounts" are usually billed at cost, we can see already if we bill out a part on a Counter Ticket, the Overall Gross Profit Percentage is immediately impacted. The "trickle down" effect continues with Parts Gross & True Turn and the Overall First Time Fill Rates at cost.

Industry Guidelines Dirty Core "Effects":

I believe that the fact that "Dirty Cores" are billed at cost will not only decrease Parts Gross Percentage on Counter Tickets, but they will also add cost to the Work-In-Process Parts Amounts, Increased Inventory Turns that are not true, both on the Gross Turns and True Turns.

Fill Rate Effects are also impacted by this added "Dirty Core Amount", over and above the cost of the actual parts billed. Lastly, these "Dirty Core Amounts" can impact Obsolescence Amounts if they move into that category.

Industry Guidelines Dirty Core "Solutions":

In my opinion, the solutions in these "Dirty Core Amounts" in this section on the Industry Guidelines is a combination of all the above and the "timeliness" of how we can cycle them through in 30-45 days. I realize not all can be cycled through in that time span for various reasons mentioned, but we can minimize the overall "Cause & Effect" on this new era of "Managing Dirty Cores"

f you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

March 2025: First Quarter Parts Goals for 2025: "Have We Met the Challenge?"

As we approach the end of the First Quarter of 2025, we have to look back to January when we first set our goals with our "Top 5 Parts Focus Points" and where they have led us to this point. We laid out the plan in January, then started to break it all down in February starting with Parts Obsolescence Prevention.

The remaining list of our "Top 5 Parts Focus Points" in the First Quarter of 2025 include Parts Monthly Reconciliation, Perpetual Inventories, Pricing Strategies & lastly, our Overall Parts "Mindset". Our last four will be our "focal point" of this month's issue of ACG "Smart Parts" as we close in on finishing the First Quarter of 2025.

It may seem like we spent a lot of time by devoting our whole February Issue on Parts Obsolescence Prevention, only to turn right around in March with the other four, but there are many reasons for that decision.

Let's start by looking back to our January Issue and list out all of our "Top 5 Parts Focus Points" for the First Quarter of 2025 in their proper order. 

• Parts Obsolescence Prevention
• Parts Monthly Reconciliation
• Parts Perpetual Inventory Process
• Parts Pricing Strategies
• Parts Overall "Mindset"

Even though they have already been mentioned, I want everyone to look at the order of the five and imagine for a moment how Parts Obsolescence Prevention may actually impact the bottom four. If you think that they are not related in any way, you may just be missing something that we will soon find out in this issue.

Actually, and in my opinion, you cannot be successful in Parts Obsolescence Prevention Plan unless you actually include the other four key elements in our "Top 5 Parts Focus Points" in the First Quarter of 2025.

After all, the most important part of having a Parts Obsolescence Prevention Plan, is to have the intention of keeping it under control in the future. Thus, the use of the word "prevention" and not just getting it get out of hand, or until it becomes a major priority.

Now! Let's See How All the Rest of Our "Top 5 Parts Focus Points" for the First Quarter of 2025 Actually Play into the Whole Mix!

If you haven't figured it out by now that our "Top 5 Parts Focus Points" for the First Quarter of 2025 heavily revolves around Parts Obsolescence Prevention. The real question is just how it does and why it plays such a big role.

In this issue of ACG "Smart Parts", we will lay out how we can actually control, reduce and prevent future Parts Obsolescence by utilizing our other four Parts Focus Points to achieve our First Quarter Goals. More importantly, how we can put Parts Obsolescence in its place and under control for good.

After we have done that, we can move on to other Parts Goals for this year and beyond. If you could imagine for a moment what our world would be like if we had an "on-going" Parts Obsolescence Prevention Plan where we didn't have to carry that "Monkey on Our Back" all the time.

So, let's get the ball rolling and bring in our other four Parts Focus Point for the First Quarter of 2025 that will help us put this Parts Obsolescence Monster in its proper place. I believe you will find in the end that these other four to be the keys to success in actually achieving our Parts Goals in many other areas.

Here We Go!

Parts Monthly Reconciliation:

Performing a Parts Monthly Reconciliation each month, believe it or not can help us control and prevent Parts Obsolescence by keeping track of the Parts Ledger Balance Inventory Amount versus the Parts Controlled Inventory Amount in the DMS. 

If we reduce and prevent Parts Obsolescence, we would be left with those parts that are actively moving between 0 - 12 months constantly. If we have a significant amount of Parts Obsolescence that we are constantly dealing with, it makes it that much harder to determine our variance amount between the Parts Ledger Inventory Amounts versus the Parts Inventory Controlled Amounts in the DMS.

For example, if we had an overall Parts Inventory Amount of $400,000.00, of which $100,000.00, (25%) is considered to be obsolete and sitting there, it could actually "mask" variances on a month-to-month basis or especially at the end of the year.

Case in point, if the Parts Inventory Amount between the Parts Ledger Balance Inventory and the Parts Controlled Inventory Amount in the DMS was off by $25,000.00 in a given month or year, it would represent a 6.25% variance in the total Parts Inventory including Parts Obsolescence.

If we didn't have that $100,000.00 in Parts Obsolescence, that percentage would jump to 8.33% in the variance between the Parts Ledger Balance Inventory versus the Controlled Parts Inventory Balance in the DMS, which would be much more noticeable.

Having an excessive amount of Parts Inventory over the Industry Guideline of 45 Days, includes Parts Obsolescence, and Parts "Overstock" Amounts which makes it more likely that these variances will be evident.

It all comes down to "checks & balances" at the end of the year and no matter what the Overall Inventory Amount is, the Parts Inventory has to be reconciled each year. Doing this practice on a monthly basis just makes it so much easier to prevent those end of year surprises. 

It's also much easier to discover inventory variances on a monthly basis where we can look back over the last 30 days, versus waiting until the end of the year. Tracing down these parts variances is much easier looking back over 30 days as opposed to trying to find them over the course of the year after the Annual Physical Inventory is performed.

Parts Perpetual Inventories:

Performing Parts Perpetual Inventories is often confused with performing Parts On-Going "Bin Checks". First of all, performing Parts Perpetual Inventories mean that the whole Parts Inventory is counted each and every month.

In other words, if we have 100 total bins, we will have to physically count at least 3 - 4 bins per day. By the end of the month, all bins would be counted, and we would have a "Before Inventory" count and an "After Inventory" count. This process is repeated each month with final monthly counts submitted into the Accounting Office.

Performing and correcting inventory amounts by random "Bin Counts" or "Bin Checks" is just that. Although it does help to get a sample of incorrect counts and perhaps a variance percentage, but it does not hold water from an Asset Accounting Standpoint at the end of the year.

The reason that Perpetual Inventories plays a huge part in Parts Obsolescence Prevention standpoint is quite simple. If we are carrying an excessive amount of Parts Obsolescence, it simply means that we have that many more parts to count each month if we are doing Perpetual Inventories.

A successful Parts Perpetual Inventory Process can only be achieved by having Parts Obsolescence in check to Industry Guidelines with all bins counted each month. Having a Perpetual Inventory Process has been proven to result in the lowest Inventory Variances between the Parts Ledger Balance Inventory versus the Parts Controlled Inventory Balance.

Lastly, I would only recommend implementing a Parts Perpetual Inventory Process only after a Parts Physical Inventory has been completed. Starting this process with a "verified" Parts Inventory Count is the only way to insure this "constant" process will be accurate going forward.

Parts Pricing Strategies:

In my opinion, having the right Parts Pricing Strategies is the Number One Parts Focus Point in Controlling & Preventing Parts Obsolescence. Unfortunately, many dealers don't include their Parts Obsolescence when creating their Parts Pricing Strategies, or "Policies".

Parts Pricing Strategies usually include a Parts Matrix and perhaps a "Weighted Parts Averaging" Pricing Strategy for Competitive Parts to achieve a desired overall Retained Parts Gross Profit Percentage at or above Industry Guidelines on Customer Pay Repair Orders and Over Counter Retail.

This is all well and good, but have we ever thought that we should include a "Parts Scrapping" Account when developing our Parts Pricing Strategies, or "Policies" in the first place? What if we added a couple percentage points to our overall Customer Pay Parts Retained Gross Percentage Goal to set some aside for Parts Obsolescence?

Many dealers actually use this Pricing Strategy for their Used Vehicle Inventories, often referred to as a Used Vehicle "Bruise Account" to offset gross losses on those vehicles. It works the same way for the Parts Inventory if we would just set aside monies devoted to Parts Inventory Protection on Obsolescence.

Many dealers do have some monies that they set aside for Parts Scrapping, which is a good thing. But if we would include this account in our Pricing Strategies to begin with when we develop our Parts Matrix and Weighted Average Competitive Price Parts, it becomes much easier to maintain overall gross retention amounts and maintain a healthy Parts Scrapping Account.

In other words, if I'm the dealer and my overall Parts Retained Gross Profit Percentage goal was 42% - 45% on Customer Pay Repair Orders and Counter Retail, I would just bump that goal by 2% for my Parts Scrapping Account.

I would then adjust my Customer Pay Parts Pricing Strategies up by 2% in my Parts Matrix and Weighted Average Priced Competitive Parts. At the end of the month, and if I achieve an Overall Customer Pay Gross Retention of 44%, I could then make a Journal Entry in Accounting to add that 2% to my overall Customer Pay Parts Cost of Sale. 

The Journal Entry would then lower my overall Parts Customer Pay Gross Retention down to 42%, (still at Industry Guide) and then move those monies over to my Parts Scrapping Account. Easy to manage by both the Parts Manager and the Office Manager as the Parts Manager can monitor this gross percentage daily.

In other words, if my Customer Pay Cost of Sales were $100,000.00 in a given month, my Cost of Sales would be adjusted up by 2%, ($102,000.00) this reducing the gross by 2% and the $2,000.00 would be moved over into my Parts Scrapping Account.

The reason this process is much better than just putting aside a "set amount" each month for Parts Scrapping is because the overall Customer Pay Gross Percentage set aside will always "flow with the gross" each and every month. Putting aside a "set" amount may affect the overall Customer Pay Gross each month as it will vary each month.

Setting aside a "specific" percentage of Customer Pay Gross Profit, along with utilizing all of our options is the only way to have a successful Obsolescence Prevention Program.

Utilizing our Obsolescence Vendors on a monthly basis once those obsolete parts hit that 13th month, or 16th month, (GM Dealers), while they are still fairly fresh will give us higher closing ratios on what they accept and at a higher offer price.

Parts Overall "Mindset":

Our last in our "Top 5 Parts Focus Points" for the First Quarter of 2025, is rather short and simple. In my opinion, and as "Smart Parts" Managers, we have to take ownership of our Parts Departments. 

Imagine for a moment, if we actually did own our Parts Department and now it's "Dave's Auto Parts", would we think and do things differently? We have a huge responsibility as we control this huge asset for our dealers.

Let me ask a few questions and imagine for a moment that you are the owner of your own Auto Parts Store, or perhaps you actually own your Parts Department...

• Would I want to know the amount of the parts I paid for on my Ledger Balance Inventory and if it actually matches total amount that I have on the shelf in my Parts Controlled Inventory? (Monthly Parts Reconciliation)
• Would I want to make sure that my Parts Inventory Count was accurate at all times? (Parts Perpetual Inventories)
• Do I want to keep Parts Obsolescence under control without adding more Parts Acquisition & Holding Costs while remaining profitable to Industry Guidelines? (Parts Pricing Strategies)
• Do I have what it takes to achieve my goals in every quarter of every year and achieve High Inventory Gross & True Turns, High Returns On Investment & Profits while Protecting My investment? (Parts Overall "Mindset")

I think now that we all know that our "Top 5 Parts Focus Points" for the First Quarter of 2025 are worthy, essential and play a huge role in achieving our Overall Goals throughout the year. Perhaps the most important question now in all this is...

"Are YOU Going to Meet This Challenge by the End of the First Quarter of 2025?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...