Body Shop returns

[joe r]

I have a few body shops, one in particular, that have excessive returns. The one purchased about $60,000 last year and returned 13.2%. This year he is on track to buy $100,000 but his return percentage is up to 16%.
Have any of you been able to solve this problem with your customers short of telling them to buy elsewhere?
It really irks me that they buy the parts from us, bill them on their RO and return them and have the nerve to complain about a return charge. We help them cheat the insurance companies but they refuse to assist us in covering our return charges.

Joe R

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[Richard]

I have had this problem at every dealership I have ever worked at. Recently we got an upgrade to our EDS software for parts, and one of the new reports it will give you shows customer purchases, and returns. I looked over my W/sale accts, and found the one I thought was my very best......was my very WORST.....had a return rate of 40%! What I did was basically print the report off and went over and talked to the owner of the business. In the end, he stopped buying a lot of stuff from us, but the stuff he does buy now STAYS bought! And, I looked at the report again today....his purchases are trending UP again, but the return rate is still staying low. These guys are in business just as we are. Being honest with them can't hurt.

[Gary J. Naples]

Hi Joe,

Here is a suggestion. Reward the body shops that don't return parts or return a low percentage of parts relative to their purchases. Likewise, penalize the body shops that return a high percentage relative to their purchases.

Obviously, charging a return charge of some type is one way. However, a return charge does not reward the body shops that are not abusive with their returns. Another way is to give a better discount to the the body shops with low or no returns, and less of a discount to the others. The discounts can be proportionate to their purchasing and return habits. The higher discount to your good customers is offset by the lower discount to the other customers. You can still charge a return fee also, but you are thanking your good customers in the process.

Consider also that you might be better off without body shops, or any customers for that matter, who continuously return large amounts of parts . When returns consistently approach the potential gross profit the sale amounts to no more than capital turnover or worse a loss. However, customers are one of a businesses most important assets. Be sure you try every angle before taking any severe action. Try Richards approach first with this type customer, and try my suggestion. Often, you'll find that the customers who like your service and doing business with you will stay, while the customers who take you for granted will not.

Gary J. Naples

[Chris]

Many body shops simply order their parts directly from the insurance estimate. During the repair process it may be determined that the part (let's say a fender) can be repaired and the new fender returned for credit. Thereby generating extra profits for the body shop.

If the body shop claims the new fender was used and charges the insurance company for the fender then the word fraud rears it's ugly head.

This is one of the most difficult areas for an insurance company to deal with. It also drives your and my rates through the roof.

I can see only two solutions.

1. Get in bed with the body shops, tell them to reduce your expense of pulling, delivering, possible dammage, and restocking of the fender you can provide an invoice to to include the fender which the body shop may use as purchase proof to the insurance company.

2. Notify the insurance companies in your area that you are willing to provide them with return data from suspect body shops and let them react to the situation.

Wish you luck, I havn't found an IDEAL solution but the latter has workd the best for me. If you can align yourself with the insurance company they can dictate who the body shop will purchase parts from.

[Robert a Bamert jr]

I see that we all have the same problems w body shops. i've stopped dealings with managers who were business friends because
of returns.I tried even have the manager vist my store and show him the condition of the return packaging,and asked him to speak
to his people about the handling of parts,i must have been kidding myself ,but i had to
try.so in close i gave him crt on half of the returned items and lossed the business to me the percentage at which i sell b/s its not worth the agg,i'd would rather have 5 wholesale garage's then one body shop,but thats just me,wright or wrong

[slilly]

Robert,
Not only do I agree with you, but we practice it too. We have our own B/Shop and they get all the support and attention that's necessary. Our most profitable wholesale is to independent garages, with alot less headaches too.
Large Dealers who have plenty of return reserve may not be too concerned as to how much is returned to them and in what condition and if they want to cater to those who want to buy cheaper than what is sold to your own internal departments, string you out for more than 30 days on payment, you pay to deliver it to their door, and then they return a good portion of it, go ahead you can have their business.

Sam

[Chuck Hartle]

I been waiting to see how much interaction there was on this subject. Here is some simple math.

Gross Sales to Body Shop $10,000
GP at 20% profit margin $ 2,000
Net at 50% expense to gross $ 1,000

Customer returns 15% per mo.$ 1,500-
GP credit at 20% margin $ 300-
Net lost at 50% exp./gross $ 150-
Assume 75% will last 9 mos
Holding Costs for 9 months $ 200-
Labor and expense to restk $ 100-

Your gross profit goes from 20% to 17% but the net is what really gets hammered here. You can never reclaim the amount of labor and holding costs it takes to restock these returns. The actual net profit on this account is 6% dollars. What would you do?

I would get rid of the customer if he didn't change his practices or I would hit him a high restocking charge. Either way you look at it, it is a loser and a lot of maintaince when they practice this type of purchasing from you.

Chuck Hartle'

[David S]

Richard and Gary, great suggestions!

I am all for getting rid of a customer with high return percentages . ONLY AS A LAST RESORT.

If there is anyway to turn a customer around we should do it. There have been some good ideas presented here. And there is still the method I refer to as mano to mano. Your wholesale customer is a businessman. I never had a problem walking in to an account with a copy of my price book and explaining the facts of life. When I make a sale, this is what you get and this is what I get. The only time this ever backfired on me was when another dealer down the road would sell to my account regardless of how much they lost. If thats the case, so be it. They can have the business. I always knew at some point in the future the other Dealer would wake up. The business would eventually return and this time it would be on my terms.

Chuck:

Though I admit I have never seen the CPA approved calculation to determine holding costs, I have seen references to averages anywhere from 2% to 5%. In the example you provide the holding costs you describe are more like 13%. Could you explain how you came to this conclusion? Also, it seems to me that you should include obsolescence and any co-op allowance in your calculation as well as expenses covering your truck and insurance etc.

David S.

[Chuck Hartle]

Hi David,

The 13% includes obsolescence and any co-op and rent.... I wanted to make it as simple as possible.

Again, David, the mano to mano is always the best way to handle it and it has been mentioned here. Yet, even after this attempt there are Body Shops out there that will continue this practice regardless of what you do or say.

We seem to come from two different perspectives here and it is good to give every choice possible.

Here are the type of Body Shop customers that I am 'SURE' every parts manager has run into and can relate with:

He buys in large volume from your dealership. You give him the largest disount possible because he demands this. He returns 10-15% of his purchases each month. He pays at 60 days, floating you until he absolutely has to pay because you are going to cut him off or put him on COD. After a year or so of 'high maintenence' and dealing directly with him month after month, you start to charge a restocking fee and/or change his discount. He is off and running to your competitor demanding the same discounts and return habits.

These are the kind of accounts that we had being a large wholesaler. It is easy once you have gone through a few of these to just say 'NO' and let someone else put up with the frustration and the problem. If you can't make a decent profit and do business with integrity, then why waste your time and energy with these kind of shops?

The point here David is that there is 'point of diminishing' profits and it usually seems to be the Body Shop end of the wholesale business that provides it. A good Body Shop customer is not so interested is sending back a lot of returns and getting a real deep discount as he is more interested in getting the quick service as his body shop is full of cars and he needs to move the product.

Chuck Hartle'

[Jake29@prodigy.net]

Should we charge restocking fees to our own body shop? They are often the biggest offender.