April 2025: Managing Dirty Cores: "The Causes & Effects"

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...