Service and Parts: A Profitable Relationship
Service and parts are mutually dependent. Service needs parts in order to repair and maintain vehicles for customers and for the used-vehicle department. Thus a portion of the dollar amount of every service sale is a parts sale. Parts needs service because the service department is the parts departmentês best customer. You can prove that for yourself, using your financial statement for any month.
Parts Department Sales and Sales Distribution,
Month-to-Date
_________________________________________________________
[U]Category__________________Sales_in_Dollars____Percent_of_Total[/U] [U]Repair_Order__________________$_________________________%[/U] [U]Repair_Order_Body_Shop________$_________________________%[/U] [U]Counter_Retail_________________$_________________________%[/U] [U]Warranty______________________$_________________________%[/U] [U]Internal_______________________$_________________________%[/U] [U]Wholesale_____________________$_________________________%[/U] [U]Total Department (MTD)_____________________________________[/U]Except for counter and wholesale sales, parts sales come from the service department. In the average dealership, 70 to 80 percent of the parts departmentês business is generated by service sales patternsãand thus 70 to 80 percent of partsê potential for profit comes from service sales.
The most successful dealers retain the following percentages of their gross parts sales:
« Repair orders: 41%
« Repair orders (body shop):30%
« Counter retail: 41%
« Warranty: 28+%
« Internal: 41%
« Wholesale: 25%
Overall, the parts department should be running at about 38 percent gross retention. If your parts department is not holding its gross, chances are the problem lies in internal, warranty, and/or counter retail sales retention. Usually, internal salesãparts sold to the used-vehicle departmentãare the problem. They should be treated exactly the same as retail sales; as with internal labor, do not discount internal parts sales. Counter retail problems may be traced to discounting or high sales of such accessories as coffee mugs, key chains, etc. If the percentage is low on warranty parts, the parts department may not be stocking sufficient parts. Monitoring parts orders to ascertain availability is one of the service managerês responsibilities. The service manager also must track labor sales lost due to lack of parts; the parts manager needs to know what to stock. The parts manager can run a Repair Order Fill Rate report from the in-house computer system; parts must also track all lost sales.
Finally, letês consider the parts to labor ratio. Using the data from your dealershipês financial statement, extract the figures for parts sales in each category (customer, warranty, and internal), and do the same for labor sales. Your parts sales divided by your labor sales gives you the parts to labor ratio. Parts cost about the same everywhere; labor rates can vary dramatically. You should aim for the following parts to labor ratios:
« Customer-pay: $.80 Parts/Labor (for every $1 of labor, you should sell 80 cents of parts)
« Warranty: Expense per unit repaired should be equal to or less than the zone average
« Internal: $.80 (assuming retail charges; certified used-vehicles increase the Parts/Labor ratio)
It is to the advantage of both the service and parts departments that their managers understand how one department affects the other, and work together to the benefit of both.
This article is taken from NADAês Management Educationês [I]A Dealerês Guide to the Three Pês of Effective Service Management: Product, Productivity, Personnel (SP23).[/I] Download Bulletin PDF