Playing with Parts Prices Pays

November 19, 2003 by
Filed under: Uncategorized 

Say that three times fast. Those of us who work on high end vehicles have been punished for years. Order some Mercedes parts, or BMW parts and take a close look at the discount you get. It?s a fraction of the discount you get on GM and Ford parts. Why should you be punished for working on high end vehicles?

Give yourself a good slap in the face. Harder! Wake up out of that insurance company induced trance you?ve been in since you?ve been in the business and pay attention. Moses did not carry down the mountain a heavy stone tablet with parts prices chiseled carefully into it. Our Constitution has no mention of body parts price markup laws. Your state legislators haven?t passed any laws determining collision repair parts pricing. Run your business like most every other business is run. Price your parts based on desired gross profits.

Go to Home Depot and check the price on a Makita cordless drill. Now go to your local ma and pa hardware store and check the price on the same drill. Are they the same price? Go to McDonalds in New York City and buy a cheeseburger. Now go to McDonalds in East Inbreed Tennessee. Do you think the hillbillies are paying the same as the city slickers? Hell no! And why should they? Labor costs are different in different areas of the country, as are income levels. Why should every body shop charge the same prices for same parts in different parts of the country? Why should the one bay, dirt floor body shop located across from a trailer park in the Smokey Mountains charge the same for a part as a 50 bay shop located in Palm Springs?

The truth is there?s no reason whatsoever for the industry wide phenomenon. Simply put, the insurance industry is a hell of lot smarter than the collision repair industry, and they?ve convinced us that list prices are laws to be obeyed. Mandatory sentencing for those who dare break those laws! And for decades we?ve followed along like a herd of castrated sheep. Ye Shepard wields the staff and Lord help those who don?t follow to the edge of the cliff. ?Where are your invoices?? ?We can?t pay for any parts if we don?t have those invoices.? Sound familiar?

Imagine going to McDonalds and asking for the invoice to the special sauce, lettuce, cheese, pickles, onions and the sesame seed buns. They?d call the cops! How do you know if they put all these parts in your Big Mac? How do you know they aren?t charging you too much for that pickle? It sounds like a ridiculous analogy, but is it really? All you have to do is remove the top half of the bun to see the pickle. All the appraiser has to do is open the hood to see the new radiator. Does the appraiser really need to see your invoice for that radiator to be sure you installed it? And why should he question what you are charging for that radiator? Your customer chose you to repair his vehicle because he trusts you. He knows your reputation. You have certain costs to cover and should price your parts accordingly.

Many of you are cringing at the thought of charging more than list price for parts. But then, many of you consistently charge less than the list price. Shouldn?t that be wrong also? Neither should be wrong. If you can afford to discount parts, fine. If you need to charge more than the manufactures suggested retail price, that?s fine also. Yes folks, those prices listed in Pathways, Pen Pro and Ultramate are just Manufacturers Suggested Retail Prices. Remember that term?

Every shop owner needs to determine the gross profit margin needed and then set parts list prices based on that need. Get out of the habit of disclosing invoices to insurance companies just because they ask for them. It?s none of their damn business what you pay for parts and what you charge for them. The same goes for used prices. Where is it written that 25% is the magic markup amount for used parts. That?s only a 20% gross profit margin. That might not be enough for your business.

Please do remember, though, you still have to be somewhat competitive. Don?t get carried away and decide that you want to make a 50% gross profit on parts and double your cost. You?ll give your customers reason to take their vehicles elsewhere. Remember also, unless your shop is losing money, gross profit on parts translates directly to net profit, money in your pocket. The next time you agree to a 10% discount on parts to appease a DRP relationship, figure out what that means in actual dollars. It?s like pulling that money right out of your wallet and handing it to the insurance company. Don?t you have a better use for that money?

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One Comment on Playing with Parts Prices Pays

  1. I'm already on to this! on Thu, 4th Mar 2004 2:42 pm
  2. I totally agree with you and have found my own way getting my profit. First of all, I figured out years ago what the difference was between markup and gross profit margin on parts. But trying to convince someone at Farmers or State Farm or whomever, was like talking to the dead. Most people in our business, whether insurance or body shop are not very informed on economics nor can they understand these differences once you try to explain them. Then there are those that understand completely (like how when you turn on the cost plus markup in Mitchell, you get that missing percentage you were looking for and how multiplying by 1.25 is only a 20% GPM), but just don’t give a hoot. Their stuck in yesteryear. I keep my cost plus turned on and more than 50% of the time, no one notices and pays me a true 25% or even higher. I commonly get 35%-40% GPM on used parts. Now, about the (suggested retail) price of new parts. I made some changes here as well. I went into that same screen in Mitchell were you add your percentages for used parts and the cost plus factor, and I added 5% to all other parts, whether new, a/m, recored, rechromed, etc. Guess what, I have been paid that GPM more than not, cause appraisers never catch it or understand it on the estimate. Another thing, while were talking about parts, why in the daylights doesn’t somebody figure out that LKQ (like, Kind and Quality) refers to aftermarket parts, not used! Quality replacement parts are used parts! This is another industry goof up (like so many), that no one has corrected. No wonder we don’t get any respect. It’s like the morons of the world paying for and fixing vehicles.

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