Wednesday, December 5, 2018

December 2018: "Are You Ready For The New Year?"

If I were to ask our intro question to most Parts Managers, the most popular answer would most likely be..."As ready as I will ever be"....or perhaps even..."Of course I'm ready!"....

The concern that I have is that quite a few Parts Managers say their ready, but I don't believe that they are "prepared" and ready for the new year. I truly believe the preparation does precede our expectations and simply going through each day like the one previous will simply lead to undesirable results in the end.

To prove my point, let me start out by asking a series of questions that would prove to me that we are actually "prepared" and "ready" for the new year....
  • Have we reconciled our year end inventory between the "Accounting" Inventory and the "Controlled" Inventory?
  • Have we completed our employee annual or semi-annual evaluations and performance reviews?
  • Have we reviewed our parts setups and controls such as phase-in/phase-out, days supply, stocking levels, etc.
  • Did we complete a new year sales, gross and expense forecast with all other department managers?
  • Have we met our goals for 2018 and did we set new goals for ourselves and our employees based on our forecasts and projections?
If we cannot answer all these questions with a resounding "YES!"....then I guess we really aren't "prepared" and "ready"...

So, "Smart Parts" Readers!....let's get "prepared" and "ready" for the new year....

These five questions above lead us to what I refer to as the top five "Must Do" tasks that a "Smart Parts" Manager needs to complete at the end of each year in preparation for each new year. Along with some key information from NADA and other industry analysts, we will have the key ingredients to forecasting the new year ahead.

Let's start out with these five "Must Do" tasks that will help us prepare for the new year ahead. Some of which will require some key industry analysts information in order to build our "business plan" or, forecast going forward into 2019.

Let's go forward with the Five "Must Do" tasks...

1.) Parts Inventory Reconciliation:

At the end of each year, most automotive dealerships are required to "reconcile" their parts inventory between the "Accounting" Inventory and the D.M.S., (Dealer Management System) "Controlled" Inventory, whether a physical inventory was performed or not at the end of the year. 

Many automotive dealerships reconcile their parts inventory each month throughout the year which makes it much easier to "reconcile" these two amounts at the end of each fiscal year. Reconciling the parts inventory only once at the end of each year leaves the door open for higher discrepancies.

The bottom line is that reconciling the parts inventory at the end of each month and each year sets the stage for each new year with accurate reporting and a solid accounting of the parts inventory asset. The parts inventory asset represents the second highest dealership asset other than the Used Vehicle Inventory in most dealerships today.

On the profitability side of things, reconciling the parts inventory each month and each year can shake up the dealer's bottom line drastically. Even though changes in parts inventory amounts from year to year can impact the dealer's overall profitability, balancing this amount is key to maintaining a consistent asset liability.

2.) Employee Performance Evaluations:

This "Must Do" task is usually the most overlooked end of year task by Parts Managers by far. When in fact, evaluating our employees' performance is probably the most critical "Must Do" task of all.

 Developing a "Parts Team" is critical in so many areas such as Lost Sales Reporting, Maximizing Parts Profits, and Building Customer Relationships.

The most critical area of Customer Relationship Building in the Parts Department is Inter-Departmental Relationships and Incoming Calls to the Parts Department as trust and parts expertise play a huge role in maintaining customer loyalty and trust.

Lastly, the Parts Department usually maintains a dependability, tenure and employment performance level higher than any other department in the dealership, second only to office and administration staff.

Evaluating and rewarding parts department staff for consistent performance has been a major factor in the parts departments' net profit consistency in most dealerships today.

3.) Reviewing D.M.S., (Dealer Management Systems) Setups and Controls:

This is the one area that freaks out most Parts Managers when I ask them...."When was the last time you looked at, reviewed or modified your basis Setups & Controls such as Phase-In/Phase-Out Criteria, Days Supply, or Parts Order Parameters?....

In most dealerships today, the Parts Manager rarely reviews these basic Setups & Controls when in fact, parts movement cycles change on an average of every three months! That being said, why wouldn't we be watching the movement trends more often?....perhaps two or three times a year at least? Those days of "set it and forget it" are long gone in my opinion.

With days supply, both low and high days, changing so frequently, managing especially the high days supply, or BSL, (Best Stocking Levels) are more crucial now than ever before! Along with that, source ranking parts by piece sales are extremely critical in maximizing parts profits utilizing a parts escalation matrix at peak, captive performance intervals.

Even if you have a manufacturer that offers a Vendor Managed Inventory, (V.M.I.), utilizing your own Dealer Management System, (D.M.S.) is crucial to maximizing all demands recorded, especially Lost Sales. Proper recording of ALL demands, through the D.M.S. and or your V.M.I. are critical if we want to have the proper stocking criteria and stocking levels.

4.) Forecasts and New Year Projections:

First off, I have to say that if you don't know where you've been, there's no way that you could know where you are going.  You have to have a plan, and building a Forecast is not to be taken lightly. There are many components to building a Forecast and it begins with these few basics:
  1. Prior Year Monthly Averages
  2. Current 3-Month Trends on Sales and Retained Gross Margins
  3. Future Market Expectations Based on Past Performance
  4. New and Used Vehicle Sales Forecasts, Service Forecasts
  5. Personnel, Semi-Fixed and Fixed Expense Trends, (last 3-month & 12 month trends)
The most important factor to remember when forecasting Parts Department Sales and Gross Profits is that Sales and Gross Profit are pretty much dependent on other dealership departments forecasts in most dealerships. Projected Sales Department and Service Department expectations highly impact the projected  results of the Parts Department.

5.) Goals and Expectations:

Once we have crunched all the numbers, it's time to make that all important commitment to our dealer as far as what we can expect in the days, months and year to come. If we have done our homework and have combined our efforts with other dealer managers, future results can be expected.

When we set individual and department goals, especially when we write them down, we are putting our "stamp of approval" or "signature" on to what our dealer can expect in the upcoming year. Keep in mind that excuses on goals not met could just be alibis that lead to failure.

I was taught many years ago when setting goals, I had to make sure that they were S.M.A.R.T.....meaning Specific, Measurable, Attainable, Realistic and Time Focused. Setting unrealistic goals, or "pie in the sky" goals were never going to work and ultimately would just lead me to failure.

I was looking at the NADA Data numbers from the mid-year point of 2018 and a few staggering numbers just jumped out at me. All of which highly impact our parts business as well as what the future holds going forward.

The total number of new vehicle automotive dealers stayed pretty steady in 2018 with a total number of 16,794 new vehicle dealers. But the interesting thing to me was that new vehicle dealers actually employ over 1.1 million people, which is near the top of the retail market sector.

Another interesting fact in this NADA Data mid-year report was that wages for dealership employees went up 3.1% in 2018 over the previous year. Even though this was interesting to see, it was not too surprising because of unemployment at all time lows.

Finding good employees in all aspects of the dealership today continues to be a struggle as we all have experienced, but "keeping" good employees is a much tougher challenge. The cost of doing business continues to rise in the areas of training and personnel expense among other expenses that continue to reduce the dealer's bottom line.

Speaking of which, dealership net profits have dropped from 2.8% in 2012 to 2.3% so far in 2018. The percentage actually dropped from 2.5% in 2017 to 2.3% thus far in 2018 which is the biggest drop in the last eight years.

The good news is that new vehicle sales remain steady, with only a slight drop predicted in 2019, even though gross margins have dropped a little. Manufacturers keep up the heat though by offering even more dealer incentives. The increase of incentives has also driven dealer loyalty percentages even higher to the manufacturer.

The cost of these incentives to the dealer by the manufacturers may be one of the reasons that the average price of a new vehicle is up over 15% from 2012 to 2018, along with new truck sales outperforming new new car sales. New truck sales represented 68% percent of all new vehicle sales this year to date, up from 47.6% back in 2008.

Here are few more "factoids" that directly impact the parts and service departments that I found to be an interesting read in this NADA Data mid-year report were...
  • Service Department Repair Orders Sales exceeded $58B, (Parts & Labor)
  • Service and Parts Gross Profit accounts for over 45% of Dealer Profits
  • Average Customer Pay Parts & Labor Sales Per Repair Order: $294.00
  • Average Warranty Pay Parts & Labor Sales Per Repair Order: $356.00
  • Average Current Parts Inventory Per Dealer: $394,113.00 (My question would be...How much of that amount is considered obsolete?)
  • Average Customer Pay Parts to Labor Ratio: 158%
  • Average Customer Pay Labor Rate: $118.00
  • Average Technicians Per Dealership, (Including Body Shop): 16
One of the facts listed above kind of shocked me as Warranty Parts & Labor Sales outperformed Customer Pay Parts & Labor Sales as most dealers have been experiencing an overall drop in Warranty Parts & Labor Sales compared to the previous few years.

E-Commerce Parts Sales are are also continuing to rise with an expected 57 Billion in total parts sales by the end of 2019. As a matter of fact, the total outlook for our economy is still very positive with GDP, (Gross Domestic Product) numbers hovering in the 3.5 - 4.0 percent range.

One of the biggest area of concern looking ahead is the fluctuation of the the stock market and what the potential impact that import and export tariffs may have when we head to the showroom floors as some say that these tariffs alone may impact the average new vehicle price by as much as $8,000.00.

All in all though, 2019 and beyond is looking pretty strong in my book and once we take a look back at what history has shown us, along with all the above information and indicators, being "prepared" and "ready" for 2019 should be a very easy question to answer.

Thanks to the folks at NADA for all they provide in the areas of industry information, training, insight and an overall perspective that fuels our industry as well as all individual dealerships. You can check out all this information that I have alluded to and more at

So, with all this information at our fingertips, and if we follow our five step "Must Do" list of tasks by the end of this year, answering this age old question should be a no-brainer....So?!...

"Are You Ready For The New Year?"

Happy Holidays To All From ACG "Smart Parts!"

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