Dealernews asked Dealership University's Rod Stuckey to discuss the importance of using metrics in managing a dealer parts and accessories department with Steve Jones, who will be hosting a series of seminars at the upcoming Dealer Expo 2012. Jones is senior projects manager for Gart Sutton & Associates, and in addition to other work has logged more than 30 years of experience on the dealer side in service, parts and sales.
Stuckey: What common problems in the P&A department lead to a lack of profitability and an increase in obsolete inventory?
Jones: At its heart, profitability is pretty much a matter of setting and sticking to margins — easier said than done in some cases. How many times you can turn that inventory at a given profit margin is really what determines how you’re going to come out at the bottom line.
Discounting is another real biggie. In years past, everybody had an account and everybody got a discount, and everybody who walks in the door wanted a discount, but you just can’t do that today. Ideally there shouldn’t be any discounts, particularly to internal departments, and rarely to customer accounts. Not controlling employee access to changing part quantities in the DMS is an open invitation to internal theft, and that’s a big loss of profits — very common, sadly.
Also, not using an “Open to Buy” system, that’s really one of the biggies. An Open to Buy system helps you control the valuation of your inventory in the key categories.
Why is it the parts department is such a critical component of the dealership’s overall cash flow?
Jones: Next to F&I, PG&A offers the highest margins that you can get in the dealership, and the dollar volume is much, much higher than F&I. That means that it has the greatest potential for covering the major portion of the dealership’s overhead. That becomes really critical in times of slow unit sales, because if you can absorb all the overhead of the dealership with parts, accessories, and service, then essentially you’re as close to recession-proof as you can get. In addition, the department does maintain a reasonable volume during tough economic times.
If customers can’t afford to buy new units, they tend to repair what they have, and it brings in maintenance parts customers. And repair parts customers that may well purchase other products or services while they’re there.