Reading into any automotive trade publication or journal, the first thing we see is that it’s getting harder and harder to be profitable in the new car side of business.
With vanishing profits and a slumping U.S. market, some say a period of disruptive change is coming. Fixed Operations really has become the backbone of the dealership, especially in terms of overall expense absorption. Now, more than ever, every department is expected to grow and financially contribute – parts is no exception. Historically, parts and labor together is a nice money maker bundle for the dealership, especially in terms of generation of gross profit dollars and turnover of the dealer’s parts inventory investment. It’s like hitting a double home run with every R.O.!
What this means is that customer retention on the service side is vital, ensuring cars actually show up to service for repairs and customers authorize those repairs. If you sort these cars by age, it’s easy to see that warranties are the key traffic driver and that repairs for normal wear and tear items decline rapidly after the car is more than two to three years old. This is when customers typically begin to defect away from the service department and go to ISPs, or independant service providers. It’s the end of the road for the service manager when the car stops showing up or warranties expire. However, for the parts manager, the journey has just begun.
The growing population of cars (VIOs, or vehicles in operation) is getting larger and larger with every car manufactured and subsequently sold.
The average age of vehicles on the road today is at a record high 11.6 years old (or the “sweet spot” for parts demand), yet dealerships seem to be selling fewer and fewer parts every year. Many progressive dealers know that they just can’t sit back and watch the market pass them by. What if the solution is in the parts department?
Taking Control of Revenue Streams
Most parts managers have been known to say “If the service department is breaking sales records, so am I, but if they are not breaking sales records, neither am I.”
This isn’t a good place to be. Parts managers have little control over the traffic that comes across the service drive, but have total and complete control of parts not attached to a repair order or over-the-counter (OTC) parts, also defined as retail parts, accessories, and wholesale. The “new” or fourth OTC revenue stream for many parts managers is eCommerce. Those who embrace are no longer held captive by repair order count or local market constraints, as they know that today’s parts consumers are online. With 53% of eCommerce parts revenue taking place after normal business hours, it’s safe to say that consumers shop when it’s convenient for them. However, many new car dealerships do not have or offer an online parts catalog. It’s a missed opportunity.
Last year, over 8.9 billion dollars worth of auto parts (both aftermarket and OEM) were sold via various eCommerce platforms, yet less than 20% were OEM parts sold from an authorized OEM dealer. The other 80% was aftermarket! According to a study by Hedges and Company, that 8.9 billion is projected to double by 2020. Out of the nation’s 16,802 franchised new car dealers, less than 20% offer a 24/7 online parts catalog. OEM parts sold via new car dealerships online alone are projected to grow at a 15% rate every year. Auto parts on Ebay are sold at the rate of three per second, and online sales of auto parts and accessories purchased from mobile phones will reach nearly $6 billion in 2018, a 30% increase over 2017. Now compare this rate of growth to wholesale. The difference is very compelling.
Time and Convenience is the New Currency
Selling parts is no longer just about selling to cars in the repair shop or local wholesale and retail customers. Today’s parts customer lives in a 24/7 online world and like to purchase when it’s convenient for them. The question to be asking is if you are saving your customers time or costing them time? eCommerce is the way to connect with these buyers and facilitate purchases.
Buyers are online checking for part numbers, fitment, price and availability – information that is readily available for most routine or commonly used items. Also, many of these online customers do not have access to a nearby local dealership. The key here is to be customer-centric and not giving them a reason to go elsewhere.
Today’s consumers are tech savvy and prefer genuine OEM parts to aftermarket parts for many reasons. The dealers who live in the digital age know their customers are online and demand convenient options, so that’s where they’re starting to sell dealership can tap into new customers every month on both stand alone and plug-in websites, as well as very popular consumer marketplaces like Amazon and Ebay. You can sell a little, or you can sell a lot. And those first-time customers will likely turn into repeat customers.
It’s a thriving market opportunity that most dealerships have been slow to catch on to. But with the right setup and strategy, it’s a vital revenue stream that can help your dealership hit OEM purchase objectives and back-end bonuses that are an absolutely critical contribution to dealership operating profits.
Speaking more on convenience, parts ordered online are 100% prepaid regardless of stocking status and the customer gets the part delivered to their doorstep. All the dealership needs to do is print a shipping label, process and ship – then they’re done. The customer never steps foot in the dealership. With online customers, there’s less inbound phone calls and quotes needed from the dealership. eCommerce is truly less labor intensive compared to servicing local wholesale accounts and subsequent deliveries.
eCommerce Skills are in High Demand
Dealerships and parts managers may be thinking, “What’s in it for me?” Skills you acquire go with you wherever you may go. Parts eCommerce is growing year over year, and as more dealerships get started online, it will get more competitive. Parts managers and teams with experience selling online will have a huge leg up on those who have never bothered. When it comes to job searching, it gives an advantage. Even though eCommerce is fairly easy to get started with, there’s plenty to know as far as tips, tricks, and best practices that make it an in-demand marketable skill. Luckily, there are plenty of resources out there to help new parts websites succeed.
“If somebody comes to me and they’ve got experience doing [parts eCommerce], it’s a step ahead of everybody else,” says General Manager A.J. Ager from Wilcoxson Buick Cadillac GMC. “Not everybody knows how to do it or is even willing to do it.”
All In: What You Need to Know
It’s a new business, and most new businesses are not profitable from day one.
Marketing and advertising (paid traffic) is required for stand-alone websites in the beginning.
Plug-in parts catalogs replace the outdated parts order form on a dealer website.
Patience is measured in months.
Shipping is a profit center. On average, the markup is around 12%.
Matrix pricing is a best practice and aggressive pricing wins the day. It’s all about volume.
When monthly sales exceed 40k, staff online sales with a specialist.
Online customers expect timely and professional replies to their inquiries.
Make sure your platform has fraud protection tools and has options for ebay and Amazon.
Don’t ignore accessory sales. New car buyers on average are willing to spend upwards of $1,500.00 or more within the first 90 days of ownership to personalize their vehicle.
Report online sales channels as stand-alone profit centers.
While all are important points to remember, pay close attention to the last one. You can’t manage what you can’t measure. Be sure to report the channels with their own sales and cost of sales accounts if possible. Check with your OEM accounting manual, and talk it over with your controller – do not include it under “cash retail.”
Remember, repeat customers are the best customers you can ever have, and eCommerce makes it easy for that transaction to happen in the first place. Happy selling!
About the Author
James Holloway is a 35-year parts expert and eCommerce evangelist at RevolutionParts. James has D.I.Y., Recycled, Aftermarket and OEM parts experience. His motto is “We are all in this together” and he is all about helping other parts managers and sharing best practices. He has worked as a wholesale coach for both Mercedes-Benz & Volkswagen, is a former 25 year Parts Director and has consulted hundreds of Parts Managers in growth strategies, customer retention and best practices.
