Recently, I met with a manufacturer’s regional fixed operations representative and a retailer’s general manager who was new to this particular dealership for the purpose of reviewing the past performance of the fixed operations of this specific retailer. The manufacturer’s representative turned to us to focus on the significant decline of the collision parts wholesale business and the impact that the decline has created on the parts department profitability, as well as the decline in potential earn-back incentives from the manufacturer to the parts department, as well as the loss of manufacturer’s parts obsolescence return credits.
After the meeting, I suggested to the retailer that we perform an analysis of the potential opportunity of getting back into the wholesale market and complete a business plan.
My first suggestion was to determine a logical area of coverage, assess the competition, complete a list of potential customers, and plan visits from our parts manager to the managers of these businesses. I asked that we develop a questionnaire that would ask the potential customer who their current supplier of collision parts is, the frequency of deliveries, the pricing structure, or discounts that they were offering, any price match software that their current vendor made available to them, the ability to provide a “hot shot” on a priority part, their policy on returned parts and restocking fees, the payment terms that they were offering, a list of credit references, and their overall satisfaction with their current vendor.
Step number two was to obtain a map of our potential area of coverage and use a push pin system to identify the locations while determining the logistics of servicing these customers once or twice daily, considering the roads and highways that we would travel and the potential traffic issues during peak hours.
Our next step was to determine the physical capacity of our parts department and our ability to begin to stock large collision parts such as hoods, bumpers, fenders, headlight assemblies, air conditioner condensers, and radiators.
The next step was to determine the financial resources that this endeavor would require. With the assistance of the comptroller, we would need to determine the following financial requirements. We would need to determine a budget for inventory and the carrying costs of the increase, considering the depreciation of company vehicles, fuel, maintenance, and repairs, salaries of additional staffing, such as an outside salesperson, drivers, shipping and receiving personnel, inside salespersons, additional commissions to managers, and additional advertising costs. With this information, we would be able to calculate the cost of operation and determine the monthly “break-even” sales amount of parts that would be required, assuming an overall gross profit of a minimum of fifteen percent. I also inquired with this retailer about the possibility of partnering with their sister stores in this market that represented other vehicle brands, with the possibility of consolidating their parts wholesale business, which could result in an opportunity of reducing our operating expenses.
By determining the “break-even” sales amount of parts, we can determine the impact of the additional benefits of any manufacturer rebates that our parts department would receive.
In closing, after doing our due diligence, we can now complete a business proforma so that we can make a logical decision if the wholesale collision parts business is beneficial to our organization.
