internal repairs/parts

[joe r]

It's amazing how many dealers and GM's don't understand internal profit. Or don't want to. They only look at the Sales Dept. profit. In the end the customer who buys the car actually pays the internal profit, the cash outlay of the dealership is almost always less and the dealer just takes the money out of one pocket and puts it in the other.

Doing used car recon in house always is less than sending it out. But it will cost the used car department more. I don't understand why they don't want to build an extras $300 or $400 profit in each car.

Joe R

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[spwilkins]

As a dealership employee, I heard the line "each department is responsible for it's own profit" many, many times. Now, as the GM, I see how anti-competitive it can make a dealership - large or small. Quality of repairs becomes questionable at best, overall cost is not lowered much, accounting has a big headache, and the dealerships bottom line suffers. If a DP or GM allow outsourcing too often, they are making too much money and they are allowing the managers to work for themselves, not the dealership. One of the answers most of you won't like though, is if you are getting smoked by your competiton, maybe you need to look how you are treating your internal customer. Do you offer competitive prices to the sales manager for accessories and repairs just like you do your customer pay customers? You can't stick it to sales and expect them to give up gross so you can keep gross. If the parts or service side is taking unfair advantage of the internal customer it can also mean the GM or DP isn't controlling those managers very well either.

[scotstrong]

spwilkins:

If you do a search for "retail pricing for internal sales" you will find a couple of previous threads with some good points made. NADA 20-group (not my favorite source for establishing policies and procedures) recommendations are to charge retail price for internal sales; most industry consultants now recommend this also. One of the basic reasons is that it has been proven time and again that used car depts work from cost up and will gross "X" dollars per vehicle regardless if their cost is slightly higher. If they have $3900 in a vehicle and their goal is $1500 gross they will sell it for $5400. If their cost is $3800 they will sell it for $5300. If their cost is $4000 they will sell it for $5500. They just plain rarely realize additional gross because their cost is less. The prevailing mindset seems to be that "I can make an easier sale because I am not asking as much"; but the bottom line result is rarely more gross. Many GM's and DP's, realizing this, have said to themselves "why not grab a little extra gross in the back end if we will still realize the same gross on the used vehicle when it is sold." The used car dept. also gets the benefit of any "specials" offered to the general public as opposed to charging them a higher price for these services under this scenario.

As far as accessories go, there are some items that we just cannot compete effectively with the aftermarket on. Audio systems, rear spoilers, and sunroofs are prime examples. And yes, we may need to look at internal pricing policies to be "competitive" with the aftermarket. Competitive, however, does not necessarily mean cheaper. What the gist of this thread was about was items being sublet elsewhere for minimal price differences.

Now then let's look at the way most parts managers view their profit-generating responsibilities to the dealership: We are taught to calculate our break-even point and understand that we need to mark every part we sell up by that amount in order to be profitable. In the real world, some will sell for higher than breakeven; some will sell for less than breakeven; the goal being to have more "higher thans" than "less thans". If you do not already have one, I would be glad to e-mail you a calculation for total dept. breakeven and how to compare that to each sales category to determine if you are currently at a net profit or at a net loss for each of those categories (based on actual financial statement expenses). What most dealerships find is that retail and warranty they are profitable on; and they lose money on wholesale and internal. This can be a real eye-opener to many departments that thought they were making money on their wholesale only to discover that when compared to their true dept. expenses they were just spinning their wheels for little or no net profit.

Here is the double-whammy that many parts depts. face: (A)internal expense distribution that subsidizes the variable operations at the expense of the fixed operations. This is a conscious decision by ownership / upper management to make the front end more profitable. The real problem here is that it drives up the parts dept's break-even point and makes it artificially high. So when a parts manager has to establish internal pricing based on his "expenses", the variable depts. think they are being "gouged". The parts managers are doing nothing more than playing the hand of cards they are dealt. (B)Sales depts. screaming about pricing and parts needs to give them a better price or they cannot sell it. So the parts dept. is already subsidizng a portion of their expenses and now they are expected to help subsidize their ability to generate gross profit also at the expense of their own dept's gross profit. The sales departments create the impression that their mindset is that they are they only dept. allowed to make gross profit.

Now then, when we look at pay plans and how few dealerships pay back-end managers anything on front-end gross profit, we have put them in a position of helping others make their paycheck at the expense of their own paycheck. Few parts managers expect to have it ALL their way, but is it too much to expect some form of REASONABLE compromise? Sticking it to one dept. at the expense of another is a two-way street; and their are far more dealerships that have the situation tilted in favor of the sales departments than the fixed departments.

Scot Strong

[This message has been edited by scotstrong (edited 03-23-2006).]

[partsdude]

scot id love that email on your calculations on dept breakeven.
allen3230@hotmail.com

Thank you to everyone who posted. all of your info is very interesting.
The unfortunate reality of the situation is...the DP/Owner is the one who approves of all checks. so its not like anything is "under cover".
thanks again for your input.


[This message has been edited by partsdude (edited 04-25-2006).]

[This message has been edited by partsdude (edited 04-25-2006).]

[TC-Fireman]

I have to agree with Scot on this one.

We have discovered a large number of salespeople receiving or trying to organise back hands by promising all their future business.

It should not be allowed and I cannot believe how people do not realise the adverse detrimental effect it has on company profits when it is allowed to take place.

Scot could you please send me the formula of yours. I know how to do my own but I am interested in learning anything else that may be different

[TC-Fireman]

Sorry my addy is lkingston@um.co.za