Retail pricing for internal sales

[DMuller]

Our owner and general manager are considering the possibility of retail mark up on parts and service for internal repairs. I'm interested in finding a strong pro retail pricing argument. Over the years I've heard such arguments and know them fairly accurately. However, my agrument would be much stronger if I could find some published material on the subject. Is any such material available?

[cwalden]

Hey
Try your financial statement, published each month by the owner of your dealership.

[Chuck Hartle]

Hello D Mueller,

"CWalden" is right! He is right that your financial statement is a great place to judge what your internal profits have been and what he (the Dealer) wants them to be. The ultimate question here is what pocket your Dealer wants to put the money in?

Most of the dealerships I am working with charge suggested retail prices to their New and Used Car Departments. The profit percentages run around 25% as an average.

Some dealers charge retail pricing for Used Car reconditioning while cost + for New Car(especially accessory installations).

The best argument for retail pricing internally is that you can "book" the sale into the cost of the vehicle at retail and it forces the sales department to work off of the cost of the vehicle based on that price. When you sell internally at a low margin, it allows the sales department more leverage in the sale price.

For a retail pricing program internally, you have to get the dealer to stick to it. I cannot begin to tell you how often our sales department "grinded" us on repair costs. We were charging retail on labor and parts for used car reconditioning and new car. Our dealer made this the unoffical rule. What I mean by unoffical is that the dealer would not confront and enforce the policy.

If you dealer is not behind this, you have to "police" the program. Our sales managers (especially our used car manager) would just threaten to wholesale a vehicle that our pricing was too expensive. Also, we found the managers "backdoor"-ing the service and parts department in many cases.

In other words, our sales department used the "Better to beg for forgiveness rather than ask for permission" policy.

So, the point I want to make here is that your dealer has to make that decision and stand behind it! You and your service department then have to make sure you don't try to "gouge" sales to make your profit.

The best question your dealer and you should ask is how much is your average used car reconditioning price now and how much will this affect it. It should only affect it $150 to $200 total per vehicle. If your dealer belongs to a 20-group, he should be able to get an average recon price.

Chuck Hartle

[sallen1]

Another of my favorite topics!

Our 20 group moderator has spent years getting us dumb dealers to recognize the power of retail price on internal tickets. The first to actually go to retail on labor AND parts showed some fantastic results. I called him and asked how long it took for the sales managers to stop complaining, his response: "who said they stopped?"

I went at the process a little gradually and now are at full retail (increased labor to warranty rate then parts to retail matrix). In fact, the day I decided to go to retail parts I just changed the labor-type table without telling anyone and it took about a week for others to notice (xcept the parts manager!)

It has added about $300 per vehicle recon, but we sell from cost up anyways. The best part is that the gross earned from the service work is almost always reserved, i.e., loss taken on a car deal stays in the sales department.

Your dealer/GM has to set the rule because your sales managers will try to find a better recon price sublet. The problem here is that you get to keep 50% of the cost of recon as gross in-house whereas you get nothing when you sublet.

One suggestion to keep your managers from complaining is to do this first: Pay your managers from combined sales/service gross or net. That way, everyone benefits from keeping the work in-house.

scott

[cwalden]

Chuck is absolutley correct, if the big man
says ok to retail pricing but dosent
enforce it then you need to no matter what.
Just remember that internal customer will always be there so treat them with respect.

[sallen1]

Here's something that happened to us just yesterday.

We have been marking up parts and labor to retail for used car reconditioning. Labor is straight forward, but we use that magical 'matrix' for parts which escalates the price based on a cost + % formula.

But what happens to parts you purchase from another dealer who sells a different make of vehicle? Obviously, the price you pay (your cost) is the cost the selling dealer pays for the part plus his/her wholesale markup. You then markup the price you paid based on the matrix, which probably is higher than the 'list' price of the other mfg. This happened and created a stir (albeit over $10), anyways...

I suppose the thing to do is to sell these parts at the other mfg. 'list price' (probably noted on the invoice) and not enjoy the 'retail' markup % that your other parts would.

Any comments?

scott

ps. Happy Holidays, enjoy the weekend

[cwalden]

Scott
The way I view this situation is,think of all the money that the new and used car dept
spends each month. It goes back to the old grocery store lecture,why make a good customer mad over a few dollars,sell them the
product at the same price the other store will and keep them spending money with you.
Corny story but very true.

[Richard]

Our owner decided after one of his 20 group outings, to allow us to charge New/Used/Rental 50% markup, and other departments (Service & Body Depts) 30% markup (on GM chemicals, parts they lose or damage, ect). The N&U manager we had at that time screamed like you had stuck him with a fork. He stopped buying anything from us that he could get away with. After he left, we got a different guy who knows we have to keep our bottom line up, and works with us, occasionally asking for help on certain items, such as radios, and Tahoe mats and the like, but normally he doesn't complain about pricing, he knows he is working from a cost perspective and just adds that to the cost and goes from there. Now the used car buyer/manager....that's another story....he cries every day that we are picking his pocket........oh well, our bottom line is steady, and the owner is happy, the GM is happy, and the main N/U guy is happy, so I guess we are doing ok.

[Rick Cooper]

I take slight issue with Chuck's statement that:
"The ultimate question here is what pocket your Dealer wants to put the money in?"

Retail pricing simply keeps the money in his pockets period.

Cost in vehicle = $2000.00
recon cost internal = 200.00
===========================================
Saleman's precieved vehicle cost is 2200.00
and he will sell down to a specific $$ but will generally not touch this number. You add $200 to the cost and he will generally achieve the same gross $$. If the recon cost is out of wack it probably means the vehicle was purchased badly in the first place.

Now figure the value of the time and parts used for the recon at retail and internal rates and these are the $$ lost by allowing the sales department "more leverage" in the price of the vehicle. If service wasn't handling the internal they would have been hadling a customer or warranty job at a higher rate of sale/gross.

Worked for a Dealer for 10yrs that demanded retail internal, sold the dealership to retire and the new dealer cut internal labor to 10$ less than weighted rate parts to cost + 15%

The used car gross DROPPED plus he lost the internal monies he could have retained on top of that. Multi-Level mark up is a factor any business let alone a Dealrship really needs to look at when deciding on "internal" rates.

It's not just moving money from pocket to pocket it's just throwing out the door from the begining of the process.