As vehicle gross profit per unit faces downward pressure, successful dealers are shifting their attention to fixed operations—specifically the parts and service departments. Why? Because the service drive offers a significant opportunity, one that’s essential for sustaining profitability as the age of vehicles continues to grow, extending the period for which vehicle owners seek highly trained technical service rather than opting for new vehicles.
The parts department is typically static with few changes. However, a couple of industry shifts are reshaping the landscape for parts sales:
Both factors could be limiting your dealership’s overall profitability. It is critical for management to review its parts matrix to identify whether either of these pitfalls exist. This can be overwhelming for dealers and general managers, especially those who grow up in the industry from the new and used vehicle sales side. We have created a tool called the Parts Matrix Analyzer that performs this task for the dealership. It also provides a recommended parts matrix that will maximize profitability. It is important to note that parts managers will want to source maintenance and competitively priced parts in a source that does not apply the matrix in order to stay competitive for those services. This also should not be applied to counter or wholesale parts sales.
The customers in your service drive are a captive audience trusting your service department will fix their vehicles to OEM standards while providing excellent service. Oftentimes, customers are more concerned about fixing the vehicles in a timely manner than the cost. We hear little to no pushback from those dealers that have utilized our Parts Matrix Analyzer, demonstrating that the market will bear the price increase.
To maintain profitability, your parts pricing strategy needs regular attention. Here’s what you can do:
A well-maintained, data-driven parts matrix is essential for keeping your dealership profitable amid declining vehicle gross profit and evolving market forces. By reviewing your strategy annually, pricing intelligently, and tuning out the noise of outliers, you can capture more revenue and solidify profitability in fixed operations.
Authors: Frank O’Brien, Partner | [email protected] and Patrick Schroll, CPA, CFE | [email protected]
For more information on this topic, please contact a member of our team.
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