The auto parts business in the USA is about an $8-10B a year industry, of which more than $1B include OEM parts. The year-over-year growth of this market is about 13%, and the percentage of sales that occurs online is already at about 85%. This is the reason dealers across the nation are seeing counter sales plummet.
Competition in this space is fierce, which causes margins to be slim. For most Parts Managers, selling parts with slashed margins is about as enjoyable as driving with slashed tires. Yet, that’s the reality parts sellers face when opening up an eCommerce platform.
The comfortable profit margins you’re used to as a result of markups at your over-the-counter business shrink – a lot – in the more competitive online space.
Reality is, there’s nothing you can do about slashed margins. You can’t cheat the system, since online retailers like Amazon and eBay reward competitive pricing models. If you sell brake pads at cost+35% online, you won’t be shown to customers.
So if profits in selling auto parts online are slim, why should dealers consider doing it?
This is precisely the question we set out to answer in a recent conversation with RevolutionParts CEO Ibrahim Mesbah, and auto retail marketing and e-commerce specialist Dave Rozek. Below is a short preview of our conversation.
Selling OEM Auto Parts Online is About Market Penetration
Selling on eCommerce platforms isn’t about winning the profit margin game, it’s about gross profit and absorption rate. Online is a volume play, and selling more products opens you up to benefits and incentives that you can’t find at your dealership.
For one, more sales equals more customers. And that means more opportunities for you to provide excellent customer service that will keep buyers coming back to you. Shoppers are savvier than ever and have more choices than ever, so when you meet or exceed their expectations, you stand out.
Another bonus of high-volume selling is OEM kickbacks. In fact, these backend manufacturer incentives are where many parts managers see the bulk of their gross profits from online revenue. You probably can’t move enough product at your counter to reach volume quotas, but you certainly can online where the reward can be huge even at cost+2%.
100% Absorption Rate
Absorption Rate in Fixed Ops is when gross profit covers 100% of dealership expenses. How absorption rate is defined and calculated can vary from dealership to dealership, but the idea is consistent.
As Rozek explained in the webcast,
“We sell a decent amount of cars and we do a pretty good job in our parts department already, but we’re always looking to improve because right now we’re realizing that our counter sales are shrinking. We realize that we either have to get [into an online solution] or we’re going to lose and we’re gonna start losing money.”
What Rozek is speaking to are the things we addressed earlier. With shrinking counter sales, listing and selling parts online drives website traffic and new customers that would not otherwise find their way to your store. So not only do the gross profits from parts sales help with absorption rate, they also are alleviating some of your advertising costs to reach new customers.
Mesbah illustrates the point best in the video by stating,
“The average dealership website includes a parts section. And today’s consumer commands a certain experience. Your customer has options such as Amazon, eBay, national chain brands, and competing dealerships. Convenience is a key factor for today’s auto parts buyer, who you risk alienating by not modernizing the experience.”
About this Video
The video featured in this post is a mini preview of a conversation that took place in April 2019 with Rozek and Mesbah on AutoConversion.
To view the original webinar recording, follow this link or listen to the complete conversation on my podcast in the episode titled, Can Selling OEM Parts Online Help Auto Retailers Achieve 100% Absorption Rate?
