Parts "Split"

[Richard]

I understand that when Gm 1st started this, it was to boost Service profits, but I also understand that this was in the days of the $15-20/Hr door rate. I don't see why they still need our help in the age of the $50-75/hr door rate.
Could someone tell me why GM continues to hold onto this system? I could understand it if the money went towards paying the Warranty Clerk/Cashier, or other clerical expense that was then NOT charged to Parts, but as I see it now, it is a 'Gift' to the Service Dept/Body Shop. All the other manufactuers have nothing like this, Ford did, but dropped it a long time ago. What purpose does it serve now?

[TommyA]

This is a somewhat complicated answer. As I understand the issue, GM (and others) were approached many years ago by their Service Divisions argument that "NO RETAIL PURCHASERS COMES TO A DEALERS PARTS DEPARTMENT TO BUY A CRANKSHAFT UNLESS WE HAVE THE ABILITY TO INSTALL IT...THEREFORE WE (SERVICE) SHOULD GET A SHARE OF THE PROFIT FOR THE SALE OF THE PART". Ergo the "split" of Parts profit on all RO sales. It has continued till this day. Along with the usual refusal to allow the shop a normal wholesale discount. I recommend giving them a negotiated wholesale discount rather than any form of general profit split. Check to see if you are inadvertently giving a split and discount. Thats a no, no, and rare occurance! Ford and others force the shop to become a stand-alone profit center. This will change as the industry sees the competitive wisdom of FIXED OPERATIONS. I have a whole positive rant on this idea. Hope this helped.

[This message has been edited by TommyA (edited 07-21-99).]

[jrcal]

You should try to think of the "split" as the "team effort". The parts and service depts team up to offer the customer the best solution to their vehicle needs. For example: If the customer needed a major engine repair and the service dept did not get a cut of the parts, they would sell the customer an engine overhaul which uses mostly labor and fewer parts dollars. However, for the customer's benefit, the best repair for the money would be an engine assembly that comes with the great warranty! Again, if the split was not there , only the parts would benefit as the labor is relativly low compared to the cost of the parts.
As a team effort, choices can be offered to the customer that benefit THE CUSTOMER!!! Remember, the customer pays your wages! The split is the best method I have seen to keep the customer the center of focus for all departments!



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JC

[GreggT67]

Look at the split as the same discount you would give a wholesale customer. The wholesale customer gets a discounted price and marks it up so they make a profit on it. Same should go for the service department. They are most likely your best customer.

[sallen1]

The split was one of the things that I questioned, too. It came from the time that 1) drive rates were lower, 2) new car warranty lasted 12/12, 3) labor gp% was lower.

The only conflict for the way money is moved around the statement comes when people get paid. While it would be unfair to pay someone based on the predetermined split of markup between departments, we now all base payplans on combined "service and parts sales" for advisors and total fixed gross for most others. You know my feelings on this subject.

Seems to me that service is responsible for most of the shop's parts sales and only in certain special dealerships, wholesale or counter-retail are not big contributors.

Perhaps the biggest reason the method holds over, year after year, is the confusion that would come by changing to something else. While the parts split is an outdated system, we have become used to it.

Keep in mind that there are a bunch of people out there that make a living teaching dealership personell how to decipher GM's statement. If the process changed to a real world accounting system, they would have to find another line of work.

scott

[This message has been edited by sallen1 (edited 07-22-99).]

[Chuck Hartle]

One solution to the parts "split" would be to treat service and parts (and body shop) as one profit center. The pay would be based on the single net profit of the entire fixed operation.

There are so many ways to handle this situation and we see them being discussed in the different subjects on the bulletin board right now.

For those of you who subscribe to "The Parts Manager", Richard Owen of MNI has a wonderful formula for generating more labor hours when both service and parts becomes focused on the same line.... It says what needs to be said.

We will always run into conflict and differences when we are chasing our pay plan, which happens to be a different pay line for each manager. Ultimately, the profit all goes into the same pocket when everything is said and done. A strong focus on a "team" approach is the only possible beginning to solving this problem, except a strong dealer who sets the rules and enforces them.

Hence, the service and parts director position. Ten years ago you never even heard of such a position. Now, everyone seems to be heading in that direction. Why? Because dealers are beginning to realize that there needs to be a strong focus on the "single" profit center that fixed operations really is.

Bottom line, who pays for the division and the anamosity that builds up between the different departments? The dealer and the customer!

I did just that before I left the dealership I was with and the result was a 23% increase in net profit between service, parts, and the body shop in a 1 year period, just shy of 1/2 million in revenue. How? I focused the manager's pay on a single line instead of three. I am no brain surgeon, but I was certainly tired of being a "judge" with the conflicts that arose daily and weekly.

By the way, with the 23% increase in net profit came managers working together toward solutions instead of presenting problems. I became more of a facilitator instead of a judge and it allowed me to focus on ways to enhance the business instead of "judging" it.

So, if GM doesn't want to change the parts "split", rather than re-invent the wheel or try to change it, just change the way your service and parts managers look at it.

[gene calhoun]

The parts split is another example of GM programs that have outlived their usefulness.
In today's market the average GM service department averages between 65 and 75% gross on labor sales, they also get gross off of sublet sales. The parts department takes the brunt of parts that are ordered by the techs that somehow were supposed to fix a vehicle when ordered but parts arrive all of a sudden it didn't fix the vehicle. Guess where that part ends up in the parts department as dead inventory. Granted the parts department does make mistakes and in the case of my department when we make that mistake we pay for the tech hours as well as any rental car expense occured. therefor I feel that the parts split needs to go away, let each department live or die on its own merits. Or pay the parts people on total fixed gross, not net as suggested by Chuck!