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...