The debate of what the Sales Department should pay for repairs and maintenance continues year after year.\u00a0 Most Dealerships elect to do most work at a Retail Labor Rate, understanding that the cost of the work will be passed on to the vehicle Customer and the Dealership ultimately will make more profit, since the Sales Department typically sells from cost on Used Vehicles and the commission rates are probably lower.<\/p>\n
However, there are still Dealerships whose Internal Labor Rate is 50% – 60% of the Retail Labor Rate and deeply discount the parts.\u00a0 To those Dealerships, I pose the following question:<\/p>\n
What if you\u2019re the Used Vehicle Manager and every week you bring in a beautiful trade at a great price, and you expect to make $2,000 on it, plus finance income.\u00a0 Now you\u2019re told to sell it to an employee for $500 over cost.\u00a0 (Even if the employee has plans to retail the vehicle.)\u00a0 If this happens every week, the $104,000 Gross Profit you would have made for the year is now $26,000.\u00a0 <\/em><\/p>\n Although the numbers may be more significant in this example (and maybe not), the effect is the same when the Sales Department \u201casks\u201d the parts department, the service department, and the body shop to discount their efforts.<\/p>\n The Service Department, the Body Shop, and the Parts Department could be selling their work at a higher rate to retail Customers.\u00a0 For Service and Body, there is no replenishing the time sold \u2013 once it\u2019s sold at a discounted rate, there\u2019s no chance of selling it at the higher rate.\u00a0 The time the Parts Counter People spend tracking down the parts the Parts Department doesn\u2019t stock could be spent providing excellent service to the Departments and Customers who pay a higher markup percentage.<\/p>\n As any Service Manager or Body Shop Manager can tell you, finding Technicians is a challenge; just like finding beautiful used vehicles at bargain prices.\u00a0 The effort of finding, hiring, training, and coaching Technicians is valuable –just like the time spent by the Sales Managers finding, appraising, preparing a vehicle, and then ultimately working a deal to get the best price.<\/p>\n If the Labor Rate for Service work was only worth 60% of the Retail Labor rate, you can be sure that the Factory would pay claims at that Labor Rate.\u00a0 If a parts Markup of 20% made sense, then the Factory would pay no more.\u00a0 I\u2019ve run the analysis many times, for many Dealerships, and a 25% Markup on parts will allow the Parts Department to break even.\u00a0 There is little pride or sense in breaking even.<\/p>\n There will be times when the Service, Parts, and the Body Shop will need to help the Sales Department with a discount, but it shouldn\u2019t be an everyday occurrence — we call them \u201cMulligans.\u201d\u00a0 Maintenance work should be done at the same price as Customer Pay \u2013 not more<\/strong> than the Customer Pay work.\u00a0 If there is a \u201cspecial\u201d price, then that is what Sales should pay.\u00a0 The Sales Department should also be part of the \u201cTeam\u201d and not send work outside the Dealership because they can get it done \u201cso much cheaper.\u201d\u00a0 This is a disservice to all involved, including the Customer if something on the vehicle fails because the cheapest guy on the block did the work.<\/p>\n The Service Department should be part of the Team and earn the right to charge the retail labor rate, by providing excellent service and not putting the vehicles from the Sales Department at the end of the line.\u00a0 If it takes a week to get a car through reconditioning, then I can\u2019t fault the Sales Department for demanding a discount, and now Service needs to figure out how to get the vehicle reconditioned in under 72 hours.<\/p>\n There are a lot of challenges and debates when running a Dealership and its departments; let\u2019s not make the Internal Markup be one of them.<\/p>\n","protected":false},"excerpt":{"rendered":" The debate of what the Sales Department should pay for repairs and maintenance continues year after year.\u00a0 Most Dealerships elect to do most work at a Retail Labor Rate, understanding that the cost of the work will be passed on to the vehicle Customer and the Dealership ultimately will make more profit, since the Sales […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,11,6,1],"tags":[],"class_list":["post-88","post","type-post","status-publish","format-standard","hentry","category-dealership-best-practices","category-dealership-sales-department","category-dealership-service-department","category-general"],"_links":{"self":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/88"}],"collection":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=88"}],"version-history":[{"count":2,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/88\/revisions"}],"predecessor-version":[{"id":90,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/88\/revisions\/90"}],"wp:attachment":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=88"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=88"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=88"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}