Forecasting any future event to some degree of accuracy requires a combination of current trends, past performance and applicable data. The purpose of forecasting itself gives us goals and guidelines moving forward into each day, month and year.
Weather forecasters also utilize current trends and an extreme amount data to forecast or "predict" future weather results, but their goal is to provide weather information in advance in order for us to prepare for future weather conditions.
As we move into 2015, ACG "Smart Parts" will take an in depth look at industry expectations this year and how it effects our own forecast projections. We will also "walk through" just how we can develop realistic and predictable forecasts that stretch our goals to the limits.
According to N.A.D.A. (National Automobile Dealers Association), there are well over 250 million vehicles currently in operation in the United States. This number has been pretty consistent since 2009, but the staggering statistic is that the average age of these units in operation his risen from 9.5 years to 11.5 years!
This figure alone gives the dealerships' fixed operations a boost as people are keeping, maintaining and repairing their vehicles for a longer period of time. Even more evidence how important customer retention is and where our focus should be.
Another N.A.D.A. statistic reveals that service and parts sales have also been climbing at a steady 5% each year since 2009. Although, service and parts sales are down 4% of the dealers total sales as vehicle sales have risen over 10% over the same period, which is also a good trend.
One of the most encouraging statistic from N.A.D.A. is the average dealer's net profit as a percentage of net worth is up 11% over the last five years. So even though the number of total new vehicle dealers has dropped significantly in recent years, they are much stronger financially.
"So how does this information help me in developing my forecast for 2015?"
Building a forecast relies heavily on the market's ability to meet future forecasts. As mentioned in some of the above N.A.D.A. statistics, the trends are all pointed in the right direction for "aggressive forecasting" and building overall potential. Even though primary market areas, (P.M.A) may differ, the overall trend is pointing in the right direction.
With these trends moving in the right direction, it is not surprising that many dealers I know are expanding their operations, particularly in service. Increasing technician staff increases billable hours and overall labor sales as well as increasing parts sales. Increasing staff also allows the dealer to expand their hours of operation to nights and weekends.
As far as developing a parts department forecast, our research "rides" mostly on the forecasts of the other departments in the dealership. Other than "over the counter" retail and wholesale sales, parts sales are primarily generated through the service and sales departments.
Forecasting service parts sales depends highly, if not mostly on production capabilities. N.A.D.A.'s Annual Financial Profile also revealed that the average dealership's service department staffs 15 technicians with 20 bays and an average overall door rate or effective rate of just over $100.00.
Based on the above averages, at 100% productivity and an eight hour clock day for techs, this would result in 120.0 billed hours each day. At $100 average charge per hour, the result would be approximately $12,000.00 in total labor sales per day.
By utilizing these above statistics along with current productivity percentages and "parts to labor" ratios, I can set my service parts sales forecasts quite easily. If my "parts to labor" sales is 80% of my total labor sales, this would result in approximately $9,600.00 in service parts sales daily using the above sample.
I can actually take it one step further by breaking down the labor mix of customer pay, warranty and internal that would give me the exact forecast for service parts sales for each pay type. Again, all predicated from service departments ability to produce "billed hours". Service sells only time, which is a perishable inventory and we can never get it back.
The above example holds true for forecasting accessory sales as new and used vehicle sales projections will ultimately determine our accessory parts sales. This is just another reason why forecasting should be a collective effort with all managers.
The last area of parts forecasting is the only one that the parts manager controls without other departments' participation and that is "over the counter" retail and wholesale sales. It is also the most impacted by individual dealers' primary market area and market trends.
Even though "over the counter" retail is usually our lowest sales category, "over the counter" or "back counter" wholesale sales have huge implications for some dealers. Manufacturer discounts and allowances are also profit centers for larger dealers and have to be forcasted.
Wholesale sheet metal sales are getting tougher as insurance companies get closer and closer to direct purchases from the manufacturer. Profits are also almost non existent as competition grows, limiting profitability to earned discounts and allowances, much like new vehicle sales.
Forecasting these "over the counter" wholesale sales requires a lot of trend analysis, market research, expense management and a proper business plan to achieve predictable results. These forecasts also require the most aggressive approach due to the investment and logistics required to be profitable.
In closing, the most important reason to forecasting in the first place and if done properly, it gives us a goal to reach each day, month and year. Having a forecast helps us to achieve our goals and expectations. In my mind, there is no greater feeling than achieving these projected goals.
"Are You REALLY Ready For 2015?".....
