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Letter to the Editor
This article originally appeared in the December 2000 Issue of INSIGHT
TrendLine:
Parts Gross Profit Figures
This month in TrendLine INSIGHT looks at parts gross profit by vehicle OE, aftermarket, and salvage. For this past year we have been using 28 percent GPM as an overall benchmark for parts. This 28 percent GPM benchmark was based on our review of "Top 25%" shops providing financial data to INSIGHT.
| Discount from MSRP | ||||
| Supplier | Range | Median | % of Time Shipped Same/Next Day | Number of Supplying Dealers |
| DaimlerChrysler | 15-30% | 28% | 71% | 1 + 1 Backup |
| Ford | 20-30% | 30% | 73% | 1 + 1 Backup |
| GM | 25-30% | 30% | 80% | 1 + 1 Backup |
| Honda | 15-28% | 25% | 73% | 1 + 1 Backup |
| Saturn | 15-25% | 20% | 68% | 1 + 1 Backup |
| Toyota | 20-28% | 25% | 74% | 1 + 1 Backup |
| European High Line | 15-25% | 20% | 52% | 1 per Make |
| Aftermarket (Keystone, Eagle, etc.) | 15-40% | 30% | 70% | 2 |
| Salvage | 11-25% | 20% | 85% | 2 - 3 |
Our fax survey of the 2,000 shops in our I-NET network shows that the 28 percent continues to be a valid number, as shown in the TrendLine results and based on a weighted median of OE, maker, aftermarket, and salvage.
It is interesting that the two areas of lowest GPM on OE new were Saturn and European High Line, both of which showed an average discount or GPM of 20 percent. These two areas also had the lowest same day or next day fill rate, 68 percent for Saturn and 52 percent for European High Line. Perhaps both factors are a reflection of a lack of competition.
General Motors had the highest same day or next day fill rate of 80 percent, followed by Toyota, Ford, and Honda at 73-74 percent, with Chrysler slightly behind at 71 percent.
While the same day/next day fill rate of GM is impressive, what we do not know is just how long it takes to get the remaining 20 percent of the parts ordered.
Today, the efficient operators do not start the job until they are pretty darn sure they have all the parts needed. On a medium to heavy hit, where parts may well be ordered after teardown, that late 20 percent can kill cycle time.
In terms of the number of sources for parts, the typical answer was one main source per name for OE parts with a back-up source when required. When it came to aftermarket and salvage, more sources were used, two for aftermarket and two or three for salvage.
When it comes to Gross Profit Margin, the lowest in both percentage of the sales dollar and in overall dollars per part, salvage was at the bottom with an average markup of 25 percent, resulting in a GPM of 20 percent.
Aftermarket, with an average GPM of 30 percent, was better from a percentage standpoint, but if the part was priced significantly lower than OE the dollar profit becomes unattractive to the shop.
It is interesting that with Nationwide’s new program for re-introducing aftermarket parts to its direct repairers the discount from list offered by both Eagle and Keystone, the two approved suppliers, will be 35 percent, and on this basis the shop’s GPM and its dollars may equal or exceed new OE, based on vehicle make as shown in Chart 1.
Profit Comparison on Nationwide Parts Program for Covers and Lighting
| OE | Aftermarket | |
| Suggested List Paid to Shop by Nationwide | $100.00 | $85.00 |
| $70.00 - 80.00 | $55.25 | |
| Shop GPM | 20 -30% | 35% |
| Shop $ Gross Profit | $20.00 - 30.00 | $29.75 |
It is our understanding that, for the two parts lines being introduced in the Nationwide program, covering lighting and bumper covers, that the shop’s Operating Gross Margin will be approximately equal to OE while at the same time Nationwide’s claims cost will be reduced by the difference between aftermarket list and OE list.
We believe that the market for Ford and GM crash parts has become more competitive in the past year. Perhaps this is a function of the reduced specification of aftermarket parts or just aggressiveness between dealers.
At the dealer level, it is tough to show any net profit on parts when your total available gross is just over 40 percent and parts are discounted 30 to 35 percent, plus delivering, providing credit, and allowing returns. Bottom line is that shops, whether they are owned by consolidators or are large independents, are not likely to be showing any improvement in parts GPM, as dealers’ cost for money to finance inventory and fuel to operate delivery vehicles go up.
It would appear to us that for a dealer to operate a wholesale business on a 10 to 15 percent GPM, he has to have more reasons than just making a net on his wholesale business. Usually it’s that he wants a large inventory to back up his own service and/or body shop operation and/or the benefits of a larger return allowance or buying power for parts in quantity offsets the low or non-existent net on wholesale.
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