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Discover Huge Hidden Profit in Your Parts Department

Discover Huge Hidden Profit in Your Parts Department. Dealership Parts Industry Statistics. Total parts inventory: $ 5 billion Total parts sales: $44 billion Total inventory turn per year: 9 times Total gross profit: $13 billion Average parts gross profit: 28.6 %

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Discover Huge Hidden Profit in Your Parts Department

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  1. Discover Huge Hidden Profit in Your Parts Department

  2. Dealership Parts Industry Statistics • Total parts inventory: $5 billion • Total parts sales: $44 billion • Total inventory turn per year: 9 times • Total gross profit: $13 billion • Average parts gross profit:28.6% Sources: Mike Nicholes Capital Management; NADA Industry Analyst Division: PartsEdge Incorporated

  3. Dealership Parts Industry Statistics • Average gross profit per dealership: $730,000 Sources: Mike Nicholes Capital Management; NADA Industry Analyst Division: PartsEdge Incorporated

  4. Dealership Parts Industry Statistics • Total obsolescence (10% average): $ ½ billion • Total excess (20% average): $1 billion • Total obsolescence plus excess: $1½ billion Sources: Mike Nicholes Capital Management; NADA Industry Analyst Division;:PartsEdge Incorporated

  5. Dealership Parts Industry Statistics • Average inventory: $275,370 • Average total obsolescence: $27,500 • Average total excess: $55,000 • Average total obsolescence plus excess per dealer: $82,611 Sources: Mike Nicholes Capital Management; NADA Industry Analyst Division;:PartsEdge Incorporated

  6. AVERAGE PARTS GROSS PROFIT 28.6%

  7. Dealership Financial Trends

  8. Dealership Financial Trends - Revenue

  9. The Real Deal about Your Parts Department Cash cow Consistent growth Recession proof Highly profitable

  10. AVERAGE PARTS GROSS PROFIT: 28.6%

  11. Total Idle Inventory $1.5 billion

  12. Opportunity Cost – Simply Put In terms of parts: “Money is a finite resource so it can NOT be in two places at one time. When your money is tied up in one place, it can’t be invested in another.”

  13. The Parts Manager: An Asset Manager

  14. High Stakes Opportunity Costs Big Businesses take lost Opportunity Costs very seriously • Wal-Mart: Model for Inventory Management Efficiency • Grocery Stores: Battle for Every Inch of Shelf Space • High End Retailers: Nordstrom and Macy’s • Priceline: You can’t go back in time

  15. The model for inventory management efficiency • Uses data infrastructure to increase the supply of best-selling items • Uses computer forecasting to predict the exact quantities of each item to be delivered, based on inventories in each store • Sell its whole inventory roughly 12 times a year (on average)

  16. Grocery Stores • What’s more perishable than fruits and vegetables? • Every second that passes by is a lost opportunity

  17. Priceline.com • Sells available travel related items for last-minute deals • Any amount is better than an empty room

  18. Nordstrom • In-demand items receive prominence in the store • Non-selling items are quickly discounted to make room for hot-sellers • Nordstrom opened Nordstrom Rack stores to move heavily-discounted slow moving fashions

  19. Bringing it Home: Opportunity Costs Examples in the dealership: Used Cars and Service Department

  20. Opportunity Costs in the Parts Department

  21. Lost Service Department Opportunities • You don’t have the part a customer needs? Customer goes elsewhere 2) Your hours aren’t convenient for the customer? Customer goes elsewhere

  22. Identifying Opportunity Costs • How you can calculate your own profits by eliminating Opportunity Costs in your parts department: • What’s the cost of having the wrong parts on the shelf?

  23. Opportunity Cost of ‘Wrong’ Parts What are ‘wrong’ parts? • Obsolete/IdleParts Inventory • ExcessInventory

  24. Obsolescence Definitions • 9 Months Idle = 85% Chance of NEVERSelling* • 12 Months Idle = 95% Chance of NEVER Selling.* Holding costs become more than the profit on a part IF you sell it. • * Taken from Mike Nicholes “Professional Inventory Management” (2005)

  25. ‘Excess’ Defined . . . Too much of a good thing

  26. What Does This Mean… Wrong Stock Lost Sales Reduced Profits

  27. DON’T FAIL TO PLAN • Look at factory incentives • Review your investment regularly • Consider an advertising budget • Consider aggressive obsolescence reduction methods

  28. Dealership Advertising Statistics

  29. Dealership Advertising Statistics

  30. BLOW ‘EM UP!

  31. FLUSH ‘EM

  32. MAKE FLOTATION DEVICE

  33. Idle Inventory Reduction Methods • Auction services • Donating parts • Throwing parts away • Obsolescence liquidation services

  34. RUN THE NUMBERS • Auction Services www.turnyourtrashintotreasure.com • Donating Parts www.turnyourtrashintotreasure.com • Throwing Parts Away www.turnyourtrashintotreasure.com • Obsolescence Liquidation Services www.turnyourtrashintotreasure.com

  35. Conclusion: IT DOESN’T PAY

  36. TO HOLD IDLE PARTS INVENTORY

  37. ESPECIALLY WHEN

  38. THERE’S A MARKET FOR IT!

  39. Remember Byron!

  40. Run The Numbers

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