Wednesday, August 5, 2015

August 2015: Managing Parts Department Expenses

To me, one of the biggest "sins" that any automotive dealership manager and not just the Parts Manager can make is creating a "wealth" of gross profit, only to waste it away by not managing expenses.

There are many successful Parts Managers out there who are absolute wizards at creating and accomplishing tremendous sales and gross profit numbers, but unfortunately, they have never been properly trained to manage department expenses.

Back in the day, it was quite rare that any manager ever received any dealer financial information to even try to manage expenses. It was always a surprise about the 10th of each month when the dealer came out screaming because the department was in the "red" once again for the previous month.

Not surprisingly, I still see this situation happening today in many Parts Departments as well as other Fixed Operations Departments. The one common denominator in all these cases that I have witnessed in these dealerships is "lack of control" when it comes to managing expenses.

Even though this one common denominator seems to be present each time, there are still many "factors" to this lack of control. This is where I want to begin "drilling down" part two of our series on "Managing Parts Department Expenses"

Lack Of Control Factors:

Lack of control to me is just an easy way out, or one might say "an excuse" for perhaps lack of management, knowledge or education, experience, or information. Keep in mind that I am excluding those dealers that have "over allocated" uncontrollable expenses added to the Parts Department.

In order to be a profitable Parts Manager with healthy "bottom line", he or she must have access to the dealer's financial statement on sales and gross and expense pages for the Parts Department. Furthermore, the Parts Manager needs to have access to this financial information on a daily basis.

Even though pretty much all dealerships have daily access to sales and gross information on their Dealer Management Systems, (D.M.S.), many do not have daily access to what's being posted into accounting as far as final posting adjustments and expenses.

Accessibility to this information is vital to managing expenses, but even more crucial than the information is understanding the information. There is no substitution for the proper education and knowledge needed to manage any business, especially business administration skills.

Experience also plays a huge role in overcoming "lack of control" factors as skill ability and knowledge can get you there, but experience keeps you there. Learning from past experiences or mistakes can groom any manager to being successful and profitable.

In my opinion, if a dealer wants to be profitable in the Parts Department, they have to start with eliminating these factors from happening in the first place by employing the right manager for the job. Skill, ability, knowledge, experience and access to the proper information has to be in the fore front.

Once these "lack of control" factors have been eliminated, the proper foundation has now been set to go to the next level in Managing Parts Department Expenses. There has to be "goal setting" as well a set of rules and guidelines as to what is expected, acceptable and reasonable.....

Goals, Guidelines & Definitions:

Now that we have the right person for the job, there has to be an "net profit" expectation or outcome that the Parts Manager has to shoot for which leads to a few questions.....

  • How much of my gross profit can I keep after expenses are backed out?
  • How much should I be paying to staff my department with the right people?
  • What percentage of my expenses should be allocated as "semi-fixed" expense?
  • How can I control these "fixed expenses" that are actually "non-controllable"?
These and many other questions can impact the "bottom line" if we don't know the answers to these questions going into each month. Knowing what the "expense to gross" percentage guidelines are in all expense categories gives the Parts Manager a road map to achieving expected net profit expectations.

Expense control begins with knowing just how many expense dollars are allocated to each expense category. I have always considered my "expense to gross" allocations as my "check book" and I couldn't spend what I didn't have...No credit cards allowed when it comes to paying the Parts Department bills!

Every Parts Manager needs to know their respective expense allocation percentages provided by either their manufacturer, 20 Group such as N.A.D.A., N.C.M. or any combination of these groups in order to manage the Parts Department expenses.

Most dealer financials are broken down into three expense categories;
  • Personnel Expense
  • Semi-Fixed Expense
  • Fixed Expense
I know that most "Smart Parts" Managers already know about the three expense categories, but believe it or not, many Parts Managers do not know. More importantly, a high percentage of Parts Managers couldn't even give me at least five examples of a "semi fixed" expense when I did my own recent poll!

How could these Parts Managers' control these "semi-fixed" expenses if they didn't even know what a "semi-fixed" expense was in the first place?

Outside of the people we hire in the personnel expense section of the financial, semi-fixed expenses are the most controllable on a monthly basis. By far the biggest expense factor as to what goes to the bottom line each month in the Parts Department.

The "Bottom Line":

The "Bottom Line" that I am going to close with is not the one you would expect as we will get into that in part three of our series on "Managing Parts Net Profit". The "Bottom Line" I am referring to in this case is if we don't do a few basic things such as...
  • Eliminate The "Lack Of Control" Factors
  • Set Proper Goals & Guidelines
  • Understand Definitions & Financial Information

No need to worry....there will be no "Bottom Line"!!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe 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 Vist our Website at