GM Programs Changes

[Richard]

29 Posts....wow...Hot Topic. I guess it's a good place to vent, but guess what? The owner of my store didn't get upset at all, he said that he expected it, and we needed to look at ways to tighten our collective belts. I was stunned. It DID however, wake me up to the fact that I 'personally' am going to feel the loss here a lot more strongly than anyone else in the dealership, and I had better find ways to make up this loss, either in cutting expense, or making more gross, or both. I agree that GM tends to be a follower and not a leader in this type thing, and that you can't compare us to a Ford dealer who DOES NOT have the profit transfer. I am still crunching #'s, but if I sit on my hands and pout and do nothing to improve my gross/expense situation, I will be the loser. I love this Forum, have gotten some OUTSTANDING ideas in the past, but please, let's get past the venting, and discuss the future and how to MAKE up the money that was taken from us. May 1st is less than 2 weeks away, I plan to have my plan in place before then.

[dcharette]

The way i see it I am going to give all my AC-Delco parts to my Local emergency and Stock. If i read it right from Duane we as dealers can still buy from our local delco distributors as long as they are in our area. He did mention that I have to send 70% of my order DRO. If that is the case I need that distributor to send me the parts that don't qualify for cso. If I have an order for gm I will make sure to hit the delco first and they slpit the remaining part to make sure I can hit the 70 30 rule. If I am only getting 2.75 and My local does not change my discount from what it is today. I can still show a profit increase. Please tell me if I am right? Help the profit department.

[Chuck Hartle]

Hi All,

I guess it is time to get my two cents in on this one. Why is GM doing this? In a word, "greed". From an outsider's perspective, I might seem like a stick in the mud, but it is time to buckle down and just be plain smart about it.

First, let's look at the WD issue. This scenario played itself out for another manfacturer over 20 years ago. Chrysler used to have WD's "Mopar Jobbers". In 1978 Chrysler basically mandated the same rules for Mopar Jobbers as GM is doing for AC-Delco Jobbers today. In less than two years, the end of 1979 if my memory serves me correctly, the Jobbers we gone. They did not have the vast resources it took to go out and compete against a NAPA operation. After all, the Jobber basically carries the fast moving items or competitive products where everyone is our competition. Did you sell enough of this to your wholesale customers already to make a significan impact on your bottom line, or is it because of the large discounts you got and really sold these parts to your service department customers under normal maintainence?

The WD's have been put in a "Catch-22" situation here. Their best customers are you, the dealer. Let's face it, the WD has built strong and good relationships with the dealer. It takes a huge effort and a lot of resources to mount a marketing campaign that will take your exisiting wholesale customers away from you all the while expecting you to still buy locally from them as well. You can bet that there will be conflict, to say the least.

The real issue here is probably going to be the discounts lost and the fill rate that you can expect as time goes by from both GM and the WD. From where I seeing this, AC-Delco Jobber days are coming to an end. Look past the changes now and look forward to what GM is thinking.

Second, the issue in regards to discounts, return reserve, and the CFI. It stinks, no question about it. You, as a parts operation, are being subjected to less discounts from your WD and less profit from GM in discounts, reserves, and incentives.

Let me ask this simple question. If the price of gas goes up to the dealer, what does he do? He has a certain amount of profit that is needed to maintain service and staying in business. What does the local gas station do when the price of gas goes up? He raises his prices! This would be a good time to seriously look at the loss of profits you are expecting and begin to build a pricing strategy with a new matrix table to help offset those loses and maintain your operation. Certainly not by gouging the customer, but by passing on the cost of doing business to them.

The sad thing here is that the customer is the one who ultimately will foot the bill for the reduction in these discounts. But, the sooner you get your head out of the sand and make the necessary adjustments to maintain a healthy profit structure with a solid plan that doesn't rip the customer's head off, the better you will be.

Remember, the list price offered in that book is "Suggested List Price". You can sell it at anything you wish. With regards to Body Shops, undoubtably, it is time to look at reducing the discounts to cover the costs. Anyone who maintains a huge discount while costs have increased are crazy.

The key, I believe, is to work smarter, not harder. The changes are here, they are not going away. Learn the rules and take advantage of them the best way you can. And, don't be afraid to raise your prices, you can bet your competitors will be doing this!

My two cents,

Chuck Hartle'

[Gerry Laughlin]

Richard and Dchar,
I promise I will not vent here. (I will not vent, I will not vent, I will not vent).
Anyway, we are going to be instituting a number of steps to try and tighten things up, primarily in the areas that affect returns. These include among other things:

All front counter orders must be accompanied by a VIN to eliminate the old Well I THOUGHT it was a 95, it must be a 96 and so on.
CP parts ordered by service will be prepaid, even though this is a bear to institute with ADP.
A review of our pricing setups on all dealers to ensure that our pricing to them matches theyre pricing to us.
Tighter reviews on the parts that are eligible for return under the mechanical special order parts policy.
Service mailings will be done weekly instead of biweekly to hopefully help with CP sales.
I have already met with my local WD, (which has a good discount structure), and ALL Delco items will go their way.
A review of our Matrix.

The list I am presenting to my boss is a bit longer, but you get the idea.

Thanks,
Gerry Laughlin

[Gerry Laughlin]

Chuck,
Kind of expected you to jump in here earlier.
It sounds like a good many of us are going to be meeting with our higher ups in the very near future to explain the steps we are going to institute to overcome this situation. I am sure we are going to be faced with the question of why we did not institute any of our suggested changes earlier, before GM made their change. In other words I can picture my boss saying "If this will overcome these changes, lets do it, but why didn't we raise prices, or have CP service parts prepaid before, etc.?"
How would you respond?
Thanks,
Gerry

[dcharette]

Chuck,
Did you see the telecast from GM? If they wanted the WD'S out why did they leave 100 in the nation? Why not just eliminate them and let us sell to the jobbers and installers.

If you were about to lose 1.5% in profit, and new you could take the fastest moving parts and make 12% from a delco distributor on the exact same parts would you do that? Remember we as parts managers pay our bills and get paid off the bottom line and more so the Dealer. Example

Part cost $100.00
Disc Gm 2.75%
+ CFI 1.50
= 4.25%
My profit is $4.25 right away. If I sold that part over my counter under warranty I would mark it up and GM would pay 40%.That makes the part $140.00. Now take my cost of goods at $95.75 my profit is $44.25 correct? Profit percentage of 31.6%.

same thing at 12% from my Delco dist.
Discoount $12.00

Now same math $140.00. cost of goods at $88.00 Now profit is $52.00 thats a 37.1% profit margin.

So if I bought in one year $240,000.00 from gm in delco parts at 4.25% my Dealer would make $10,600.00 just in purchasing theses parts alone.

Same thing from delco.
$240,000.00 my Dealer would make from delco dist $28800.00 on purchasing these parts.

Say that is your Dealership Chuck what would you do? Purchasing parts this way is working smarter not harder for both the Dealer and my department. Beleive me I have been crunching what to do.

[Gerry Laughlin]

I don't know if anyone else caught it, but the policy and procedures change I just recieved puts a cap of $50. on the amount we are credited over cost for new defective parts. It has always been a straight 30%. Jeez I hate to get nitpicky, but there goes another $350. GM must need it more than I do.
Gerry

[Chuck Hartle]

I'm back........

Gerry, to answer you question about the dealer wondering why you didn't do this earlier..... There wasn't a need at that time. GM has changed the rules and that means it is time to change yours.

There are 5,000 or so Ford dealerships out there right now trying to figure out the new rules Ford laid down in October. How would you like this scenario:
Return Reserve from 5% to 2%
Discounts from 5% to 1%
And, the equvalent of the CFI for Ford dealers is that if you can maintain a good fill rate and minimal obsolescence, you can get back to that rate. Ouch!!!!!

As for the WD issue and the question raised by DCHARETTE, the loss in revenue, there is two things I left out of the Mopar Jobber issue from the earlier posting. First, Mopar never had the WD network that GM has with it's AC-Delco distributors. Second, Chrysler came back and offered their EOS (Express order system) which took the competitive products and offered deep discounts based on the volume of product purchased in each line, which is still in practice to date.

If, and again I am only speculating on the way GM is acting with this WD issue, the AC-Delco distributors were to go away... What would GM do to offset this and would they put a incentive package together to promote these competitive parts to the dealer, as Chrysler did.

DCHARETTE brings up this point and argues it very well. If GM does not facilitate some type of program or discount structure should the WD's disappear, would this not cause a whole new "grey" market of aftermarket products for the dealer to purchase at a substantially reduced discount to use for normal maintainence on customer pay repair orders? I would certainly think so.

I did not see the broadcast, though I have heard several accounts of it from people who did see it and the story is basically the same. I do, however, have one question to all of you regarding the increase in list price while maintaining the cost. What margin did GM, if any, say they would adjust list price from cost to? Since the norm is a 40% profit margin (cost + 67%), what did they say they would take it to; 42% or 45% ?

It has been my experience that almost every matrix table (90% or more) is based off of a cost plus basis, will you need to update that table to maintain the existing profit structure or increase it! For example, if your matrix were Cost + 67% on a part with a cost of $10.00 the normal list price would be $16.67 with a 40% profit margin and $16.70 with the matrix.

Now that the profit margin will change, let's say to a 45% profit margin, your list price at a 45% margin will be $18.18 while your matrix is still at Cost + 67%, selling the part at $16.70 while selling for $1.48 less than the new suggested retail. So, no matter what you do, you will have to re-adjust your matrix table. By the way, if it is a 45% profit margin, that works out to Cost + 82% or $18.20 for those of you not wanting to do the math.

Many dealers have used return reserve (duh) and the purchase discounts from the WD's to help purge idle capital. One issue I raise and I have most recently to our Ford clients, is if you increase your profit margins to cover the costs and maintain a clean inventory, how are you going to be able to account properly for putting a certain amount in the till and a certain amount toward inventory control? Should you choose to do this, and I hope most do, how do you tell you people being paid commission that there will be an adjustment. All sorts of new issues come up......

As I am accustomed to doing a "Bottom Line" here it is:
Strip everything away from what you will have to do as a parts manager to offset these changes by the manufacturer and maintain your profit levels....

"IT JUST BECAME MORE EXPENSIVE TO OWN A GM OR FORD PRODUCT AND MAINTAIN IT"!

I hope customer satisfaction can survive along with the high cost of doing business with a dealership. Both Ford and GM learned how to increase profits without increasing the cost of their products.... via the dealer.

Any more thoughts, and I am sure there are many...????**###$$@@

Chuck Hartle'
The long winded....

[partsisparts]

Chuck, Gerry and fellow managers,

The mourning period should be over now- Do we have a plan in place? Some suggestions:

1. Boycott GM programs- On the Roll, Bedliners, etc.
2. Talk to dealers in your area about selling to each other at cost +25 for warranty parts. Many of us sell to each other at cost +15. WHY? If you trust your fellow dealer, have a "gentlemans agreement" to sell WARRANTY parts to each other for cost +25.
3. Bump your matrix 2%.
4. If you are a member of a local GM parts club, meet, don't whine, and make a united protest and policies!
5. Maintain and expand that relationship with your local AC/Delco WD.

GM thinks they are "forcing" us to do more business with them. These people in the "ivory tower" don't have a clue- they are driving us away!

By the way, GM monitors this forum- we MUST be united in these endeavours!

Another GM parts manager who has had enough.

[tjsmith]

PARTS AND GERRY AND OTHERS MANAGERS, YOU ARE RIGHT..WE MUST STAY UNITED...AND WE NOW MUST FIND WAYS TO MAKE UP FOR THE MONEY WE WILL NOW LOSE. BUT HERE IS THE FLIP SIDE OF THINGS...IF WE DO BOYCOTT OR BUY WARRANTY PARTS FROM OTHER DEALERS ETC... AND GM LOOSES MONEY, WHAT WILL THEY DO MAKE UP FOR THE LOSS??? RAISE PRICES AND TAKE AWAY MORE DISCOUNTS!! I AM NOT SAYING WE SHOULD NOT STAND UP AND FIGHT. BECAUSE AT FIRST I WAS MAD AND I VENTED JUST LIKE THE REST OF US, BUT IF GM LOOSES MONEY THEY WILL FIND ANOTHER AVE. TO GET IT.

[This message has been edited by tjsmith (edited 04-18-2002).]