Optimizing profitability on parts and services is a constant concern for auto dealer leadership. Parts and services margins have remained steady, almost stubbornly so. Over the past five years, according to benchmark standards, gross margins for auto parts and accessories have plateaued at 37%. Furthermore, despite gross profit for service and parts departments increasing steadily since 2012, net profit shares float around a meager 2.5%.
So, why is it so difficult for parts dealers to increase their margins?
Why Dealers Struggle to Increase Margins on Parts and Services
One of the main reasons auto dealers struggle to increase their parts and services margins is weak turnaround times. When the time it takes from receiving to completion on a vehicle repair, or parts replacement is too long, profit starts slipping almost immediately. There are two major factors contributing weak turnaround times for parts dealers.
- Scheduling. Service managers and other personnel may schedule appointments ineffectively and and create negative impacts on turnaround time. For example, in the same amount of time it takes technicians to service two or three more extensive, challenging repairs, they could be turning around six or seven smaller, more feasible repairs. Stacking repairs that require more time and energy will not only burnout your manpower, but will also prevent technicians from being able to turn a profit quicker on more manageable repair orders.
- Partnering with Inadequate Remanufacturing Centers. Partnering with the wrong remanufacturing center is one of the fastest ways to kill turnaround time and burn profit potential. Service center selection is often dictated by the automaker, or OEM who makes the original part that brought that customer into your service drive. However, getting to know the differences between your choices, and opting to work through the most qualified, engaged, and fastest vendor can help to ease the burden of slim profit margins.
What Dealers Can Do to Optimize Margins on Parts and Services
Dealers have more power over their profitability than they may think. Here are two solutions to help dealers optimize margins on parts and services.
- Schedule Smartly. Service managers who are able to efficiently distribute technicians and parts staff time and energy will reduce turnaround time between repairs and allow dealers to increase their volume of repair orders being fulfilled. The greater the volume of repair orders being fulfilled, the more profitability dealers will realize. AppointmentPlus is a useful software for dealerships that allows customers to schedule repairs online and automatically sends them appointment reminders, making the scheduling process easier for dealers and end users alike.
- Choose an Expert Remanufacturing Center. Do the research to learn which remanufacturing centers are the most responsive, expert, and accommodating, so that when it is time to choose which one to send cores to for repairs, you can have peace of mind knowing they will have the parts you need, when you need them. If remanufacturing centers can anticipate inventory levels and stock their warehouses accordingly, then, when a situation arises, it can quickly get those components back to the dealers and end users who need them, which improves not only a dealer’s margins, but also a dealer’s customer satisfaction levels.
- Cut Core Return Times. Dealer Service departments can contribute to their own success by engaging in efforts to improve efficiency. For example, Cutting Core Return Times is one key way to keep drivers smiling on their way out of your service drive.
Learn more about how dealerships can improve their customer satisfaction levels by ensuring a perfect CSI score every time.