Tuesday, July 10, 2012

"Shrinking Parts Gross?...Who's To Blame?"

I recently "polled" quite a few Parts Managers as well as some Dealer Principle on what their main concerns in the Parts Industry are today and I received an over-whelming response to their concerns.

Not only are they concerned about their parts gross retention, they are mostly concerned with their "total" parts gross profit in all areas.

If you think about it, almost every area of parts gross profit has been impacted or "hit hard" over the past 10 years or so and not positively I might add. Let's take a look at some of the areas that I'm referring to.

Wholesale parts sales and gross has diminished heavily as more and more parts managers "opt out" due to low gross retention, high acquisition and holding costs, reduced return allowances from the manufacturer and even auto insurance companies taking control of parts distribution and pricing.

In many cases, it has become an accounting nightmare as well, chasing down past due accounts, excessive parts returns and often times, damaged parts that cause even more administration costs and deferred credits.

The second area to me, that has actually been hit the hardest is the evolution of manufacturers' getting into the "Quick Service" business. The higher demand for customer convenience has actually driven down parts and service sales per repair order nationwide which to me, has becomes a "double-edged" sword.

Even though I truly believe that we need to provide the best in customer service by offering "Quick Service" options as well as to remain competitive with aftermarket facilities, there is a right way and a wrong way to implement this "Quick Service" option.

In many recent studies, including those done by the National Transportation Safety Board, upwards to 15% of all traffic accidents are due to mechanical failure from normal "wear and tear" parts or lack of proper maintenance.

Another recent study by the National Automobile Association (NADA) in their 2011 "State of the Industry" Report revealed that since 2000, New Vehicle Registration fell 28.0% while Total Vehicles in Operation increased by 16.8%. This illustrates to me that the average age of total vehicles in operation is most likely ten years or older. 

With that said, it brings me back to the right way and wrong way that we should be offering "Quick Service" in the first place. It seems that the "Parts Sales Mix" has drastically shifted to "Competitive Parts Sales" versus Maintenance and Repair Parts Sales.

Oil filters, air filters, cabin air filters, tires, wiper blades, etc. are leading the way on parts sales in the "Express Service" side of things, all of which are low gross items and have to be sold in volume to make any impact in overall parts gross.

This added to the fact that manufacturers are reducing maintenance requirements more and more each model year. Warranty repairs have also reduced over the past few years as new vehicle quality has improved, thus resulting in another overall parts gross reduction.

What are we missing here? Well for one thing, the manufacturers are happy because the're keeping their projected maintenance costs down, but are we so focused on "getting them in and getting them out" that we are missing basic inspection items on these "older, out of warranty" vehicles?

Could we be actually contributing to that 15% of these automobile accidents that are caused by mechanical failure or lack of proper maintenance because we fail to perform a proper inspection?

Some of the most common causes of these accidents in the study on mechanical failures were; brake failure, worn steering linkage, tire issues, worn ball joints and wheel bearing failure just to name few.

I also realize that various manufacturers' maintenance guidelines are minimal and may contradict many dealer maintenance guidelines, but ultimately, the servicing dealer is responsible for the doing what's right for their customers, whether their vehicle is under factory warranty or not.

We should never take the Courtesy Inspection Process lightly, even though the customer may be in a hurry to leave.

All of the above have impacted the parts department's sales and gross heavily. Fewer wholesale opportunities, fewer warranty repairs and a "Parts Sales Mix" that is shifting to lower parts gross and retention. Even "over-the-counter" sales are becoming more competitive as customers are "price shopping" more than ever.

With the majority of parts sales in most dealerships coming from the Service Department, the "right way" to provide excellent service and maximize our parts opportunities is to get back to basics.

If we do have to have an "Express Lane", we need to provide the same service as our main service drive with quality service advisors, technicians and equipment to perform the necessary maintenance and repairs.

 We CAN provide the convenience AND reduce the sense of urgency on getting the customer "in and out". In my opinion, we should never sacrifice quality for quantity, we just need a better plan.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only Results Based High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com