writing off parts

[GaryE]

I need to write off some parts. What account to most folks use since we don't have an expense account set up in our computer to do this. My GM feels it should come out of gross profit (at the expense of my paycheck). I see it as an expense. These parts are obsolete, damaged, unboxed, used, etc. Some have been sitting around for years! Since the GM wants to write them off to gross, I can see why. How do other dealers do it?
I am also going to try to sell some stuff on eBay to get something out of it. Any ideas on this?

[NetProfits]

The types of parts writeoffs you are talking about generally are written off to the 688 account ( adjustments to parts inventory) on the financial statement (provided you are a General Motors dealer) and you are right, this will affect your gross profit and your pocket book. That is half the picture. If you can see the whole picture, this writeoff also affects your dealer's gross profit and bottom line also. So it's a lose-lose situation. Now, I know he or she has more money than you , but that's no reason to avoid seeing the whole picture. If you participate in the dealership's successes, you should also be somewhat willing to participate in the dealership's failures too. Sound fair? Now, if all these obsolete parts happened on someone else's watch and you are not responsible, then I don't believe that you should be penalized for the event. In any event, the writeoff should go to the 688 account and if you are not responsible, your dealer might consider backing out the writeoff when your pay is calculated. Without having all of the facts, this is the best response I could muster so late in the evening. Good luck.

[This message has been edited by NetProfits (edited 07-15-2002).]

[This message has been edited by NetProfits (edited 07-15-2002).]

[Chuck Hartle]

Gary,

Welcome to the world of obsolete parts and what in the heck do you do with them. I could almost right a book on this subject, there are so many scenarios.

First of all, treat these parts as your dealer treats Used Cars that haven't sold in 45 to 60 days, "Your first loss is your best loss!" First of all, check with your Dealership's CPA on the tax benefits of "donating" or "throwing away" these parts. There are some tax write-offs that generally bring .40 to .47 cents on the dollar just by donating these "trash" parts to a local High School or Trade School.

PartsVoice offers are discounted parts program where you can isolate these parts into a specific source and they will pull them into their data base and offer them at a .50/1.00 value to anyone searching their site, yet you can pull these off the shelf and donate them to the university of "Dipsy Dumpster" today and almost realize the same return.

By donating the parts or throwing them away, you can free up your shelves today, instead of hoping and waiting that these parts will sell on eBay or PartsVoice. Procrastination and "hoping" the parts sell just delays the fact that these parts aren't going to sell.

Another thing you can ask your GM to do, so that the pain of purging these parts is tolerable, is to make the adjustment to the inventory in 688 over several months. Example:

You have $20K in write-offs and your dealership is on a calendar year and they close the books in January. You throw the parts away today and in Aug, Sep, Oct, Nov, and Dec you write down $4K each month in 688 instead of $20K tomorrow. And, if the dealership realizes the write-off benefit and passes it on to your department (a CPA can give you the percentage) you would have to truly write off $11K or $2,200 per month.

Once you make this decision, some ways to recapture the lost gross profit is to look at possibly increasing your escalators in your matrix table to regain the lost gross profit and/or applying purchase discount dollars on stock orders and AC/Delco purchases to the 688 account to offset it.

Finally, I would begin to look at these parts monthly and purge them on a consistent basis to make sure the molehill doesn't become a mountain again. Obsolete parts and trash parts are a reality of our business. If you begin to purge them monthly and utilize a increase in pricing and applying some of the purchase discounts monthly to offset these parts and purge them, you will go a long way in making sure the problem doesn't come back again and again and again.

Procrastination is a deadly enemy to a parts inventory when it comes to obsolete parts and idle capital. Developing a consistent routine to purge obsolete parts and having a plan to cover most of the expense is the best practice.

Chuck Hartle'

[This message has been edited by Chuck Hartle (edited 07-16-2002).]