Improving Parts Department Gross Profit
Most everyone has heard of using a parts matrix pricing program to improve gross profit margins. Over the years I’ve seen some programs that I thought were excessive and others considered reasonable. My feeling is that gross profit on parts being installed on customer pay repair orders should be around 42%. If your dealership is below that consider reviewing your matrix pricing program.
I feel dealerships must have good margins to offset the difficulty in returning items purchased in good faith from the manufacturer. This frozen capital aged inventory ends up a huge cost for the typical dealership and must be offset by good gross profit margins. How you achieve good gross profit margins affects customer retention in service if done too aggressively.
I have seen dealerships that were advised to take their cost times 200% on every item that goes on a customer pay repair order.
This aggressive pricing creates problems with the customers that check pricing at the local auto parts store or another dealership, finding that you are much higher priced than them. This aggressive pricing practice will create distrust for your dealership.
Extra Effort = Best Practice
Best practice remains using a good better best pricing philosophy that might include aftermarket items. Although this does take extra effort it will remove the concern of a customer that they might be dealing with a crook. When the dealership quotes an alternator replacement at $700 and the local auto parts store sells it for only $250, there is no way for the dealership to look good even if no matrix pricing program is in place. Normally customers will check the pricing on the higher valued parts over $150 and not be concerned with items below that number.
Good Better Best
Consider setting up your matrix with higher pricing margins on lower priced parts and going to standard list pricing on items over $150. It is my suggestion that your dealership also consider internal parts pricing to be at retail matrix adjusted cost. This will allow the dealership fair parts gross profit margins and provide more options for dealing with frozen capital in their departments. If anyone would like more information on matrix pricing feel free to contact me personally.
Rob Gehring, President
Fixed Performance Inc.
Fixed Performance complete fixed operations coaching consulting