Tweaking Cost

[jdpetey]

Can't seem to get around the Sales Dept./Service Dept. offering Parts Dept. items at cost, or near cost, to close a sale. Many times the salesman/technician may end up at the counter stretching his/her neck to see what my computer monitor displays as cost.
Aside from changing the display lines in ADP, does anyone know how escalating cost, in regards to customer pay sales,or whatever type of sale for all that matters, effects the Accounting Dept.? And, most importantly, will labor type, (i.e. warranty pay) work from true cost if we escalate cost?
What are the adverse effects of cost escalation, and can they be remedied?

Warranty repairs being calculated correctly and the accounting dept. seem to be the most important areas of concern.

Also, for a GM Dealer, Is it possible that the difference, in some instances, could possibly go to the 687 Acct.?

Clear me up if I'm going in circles, please!

Thank You,
Pete

[This message has been edited by jdpetey (edited 05-30-2002).]

[Chuck Hartle]

Great question and one for some open discussion. First of all, that last thing you would want to do is escalate the cost and show it as a true cost. If you were to do this, you would have to manually adjust the cost of the part and shutdown the cost update field on your master tape. This would be way too much hastle and ultimately you would pick up the gain when you did inventory.

True story. We had a Chrysler dealership that had a true twist to a plot. Chrysler, during the late 90's, allowed brake clean to be used for cleaning up front rotors on warranty work. Chrysler, as most mfgs, was having a huge problem with brake noise and brake dust. Suddenly, Chrysler was tired of funding two cans per RO (that wonderful ecologically sound brake clean formula that was environmentally good but sucked for cleaning anything) so they released a service bulletin cancelling the use of brake clean on warranty repairs.

The service manager would add a labor type to the warranty brake job that would have the parts department charge out the brake clean anyway at true dealer net. Hence, the parts manager boosted the cost of the brake clean 15% to make something off of it. After all, nothing is free, right?

Well, it turns out that after several months of the policy adjustment account in parts being 500 to 600 dollars, the parts manager had us investigate the cause. The result.... the service manager was having the booking clerk remove the brake clean and charge it to the parts policy account. What a double screw. The parts manager thought he was getting one over on the service manager by marking up the cost 15% only to have the service manager charge it back to his policy account via the infamous booker.

Here is my suggestion, for what it is worth. Go into your escalator field in MSSO (MNT for old 8800 software) and enter the source(s) you want to change. The last prompt before exiting the source setup will be ADD OR CHANGE ESCALATORS. Pick an unused escalator, such as the PRICE9 field, and enter the desired mark up you want. Let say you want COST + 15% to show. Do this for all of your sources that you want to make sure you never sell at cost.

Then go in and change your display line to show PRICE9 instead of COST. Alot of managers don't show cost on the screen for fear of "bitchin guy discounts" by parts advisors or for fear of the same situation you are faced with.

Then, using OSPC (OMN 4 old software), go into the price code(s) that are selling it at cost or internal where they are seeing this and change the price code for that source to sell at PRICE9. Be sure to go into your PMU map and shutdown the PRICE9 field not to update on your price master and you have solved your problem.

You might still have an issue with someone having access to the PM screen or DL screen to see the true cost. No problem! Update your DL display line to show PRICE9 and eliminate cost in any of the secondary display lines. Then, go to MAINT in UUP and restrict everyone except key people from having access to the Parts Master Screen.

This will go a long way in curing the people of knowing what true dealer net is. This sounds like a long way about it, but you only have to change it once and it works for good. This is much better than trying to manipulate your cost of the part and work around it. Any other thoughts?

Chuck Hartle'

[sallen1]

Pete,

Escalating cost seems like an easy answer to handing stuff to the sales or service dept. at "cost" or free or whatever. Chuck's solution seems complicated since what you have is an administration problem. Who runs your dealership, anyway?

Do you have a general policy concerning these items? You should all agree on what is appropriate to charge for parts to the other departments. What do you charge for UC recon parts? If it's retail, then the various departments get charged retail, period.

If this stuff is used to close a sale, the price should go against the car deal. If it's used to make a service customer happy, charge it to policy on that RO.

Another thing we've done is to setup accounts called "Service Advisor Discounts" to handle the 'bitching customer' syndrom. When the ticket is booked and the manager has not approved the discount, the discount goes against the advisors pay and collects in each advisors SAD account. This has stopped the runaway discounting on the drive, for sure and gets management involved in the process.

We seem to be secretive with 'cost' when it come to parts yet everyone knows the cost of cars and labor. Let your people know that the cost figures for parts in the computer are used to set the actual price and it's probably not the true cost anyway.

scott

[Inkman]

Pete,
While Chuck has an effective plan for putting your request into action, I think I would have to agree with Scott on this issue. If there already isn't a policy in place pertaining to internal parts mark-up there should be. In our dealership anybody with access to the accounting copies of parts tickets & service RO's can see what was made on each transaction. If everybody knows going in what's supposed to happen, then all the complaining at the parts counter can be put to bed. (In other words, ask them to take their complaints to someone willing to listen.) Sure you're going to have the occasional "situation", but set a policy that all agree to for parts mark-up & leave it at that. Besides, I'm a firm believer that at inventory time, an abundance of $ is only slightly less scary than a shortage of $.
Inkman

[Chuck Hartle]

Forgive me. Of course, Sallen's approach is the right direction. Of all the manufacturers we work with, I am more sympathetic to the plight of the GM Parts Manager these days. They are getting squeezed already by "gross profit transfers", along with at least a 2% loss in discounts and return allowance as of this weekend, not to mention that this dealership wants to give everything away at cost. I'm sorry! The advisarial side of me took over.

What we all need is to work for Mr. Allen's dealership in SoCal. Scott, why aren't there more dealers such as yourself??????

Chuck Hartle'

P.S. - JDPETEY - If Scott's plan doesn't work for you.... revert to my Plan B.

[jdpetey]

Thanks for the input.

Sallen,
The owner runs the dealership. Unfortunately, his main concern is the car selling end of the business, which I can understand. To him, parts and service is a necessary evil. The problem comes in to play when the sales dept. offers items at cost, or near that, and blatantly disregards our efforts to make a profit. Also the Service Advisors often say "This is a friend of mine" etc."Can you give them a break." I can understand that they want to make them feel that they are offering items at prices they couldn't otherwise get somewhere else, but add it up week after week and GP is ultimately affected.

Too often, the question, "What's our cost?" comes up. Rather irritating from my side of the counter.

I pretty much know that tweaking just about anything is possible, just wanted to see if anyone had done any cost tweaking experimenting.

Chuck,
I like the possibility of making a 'PRICE9' field with an escalator(matrix) of say cost + 5, or something to that affect, and for all intense purposes, i.e. screen display, that would represent cost.
Perhaps, an account no. could be set up in parts to sell parts "at cost" or "employee price" for such
occasions, based on an escalated cost (PRICE9), rather than actual cost. Also maybe a labor type and price code, etc., for the service dept.

Just a few thoughts.

Thanks, Pete

[joe r]

Maybe you can try this. I know a manager who took cost off the display line. Then the parts advisors could say they don't know cost.

Also, at our dealership internal is list and when sales asks what their cost is, we quote them list.

Good luck,
Joe R

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[Steve F]

Maybe I'm missing something here but why does anyone aside from the Parts Manager have the authority to discount parts?
Each Dept has it's own departmental goals to meet and each in turn has it own potential to make a certain level of profit. If your GM expects, for instance that your Personnel Expense be no more than 40% of your Gross Profit, how do you achieve this when everyone else, who you have no control over, is giving parts discounts?
My Parts Advisors are paid by commission and at the same time are authorized to discount for legitimate wholesalers and in cases of goodwill.
If a Salesman wants to "make a car deal sweeter" by giving away accessories he (or his dept) should be paying for it! The Parts Dept should not have to sacrifice it's profit in this process.
I, at one time, had a Sales Dept that had the highest retained Gross of our brand in the country on our new car sales but wanted every accessory they sold at a discount!

[mikesr]

Just to add to the topic.
We have experienced the same problem at our store. A very good way to answer the advisors "can you give him a discount etc." question is to ask him "what discount off the labour are you giving?"
Since we have been asking back the discounts have dropped dramatically. We now usually will only discount the same percentage they give, ie. 10% off labour, 10% off parts...no discount labour, no discount parts.
It will make the conversation easier with other department managers. The parts manager will be viewed as more cooperative as he his "coming to the party" identically as the asking department manager.

[Doug]

Good point. If we are jammed up on a job in service and need to dig our way out, both labor and parts prices are adjusted accordingly. We both take a hit for the common goal of solving the problem.

There's usually much more gross in labor, so we take a larger adjustment there.

Fair is fair. Both departments participate and then we move on, no tears shed !

Cheers
Doug Dwyer