Understanding your shop's proficiency when managing 50 key parts can increase profit

Jan. 1, 2020
Start by analyzing your parts decisions related to issues such as repair vs. replace, OEM vs. aftermarket parts and market-driven pricing trends.
Forness ABRN auto body repair collision repair estimating estimator At the most basic level, the quality of an estimate is defined by effective decisions and understanding the implications of parts and labor choices. Despite the thousands of parts on the average motor vehicle, only 50 account for 53 percent of the replaced part count and make up 47 percent of the total replaced part dollars. These 50 parts represent 63 percent of the alternative part dollars.

Understanding your shop's proficiency when managing these 50 parts can increase profit. How well do you really know your parts? Even a slight adjustment to your collision repair business strategy can drive a significant positive shift of your annual profitability. The challenge is knowing where to make that slight adjustment.

The first place to start is analyzing your parts decisions related to issues such as repair vs. replace, OEM vs. alternative parts and market-driven pricing trends. With a better understanding of these decision points, identifying where specific improvement opportunities exist may seem difficult at first. But there are several approaches you can take to create a positive impact on your collision repair business.

One of the first decisions made in the estimating process is determining whether to repair or replace the damaged part. Industry data can play a key role in understanding the impact to the bottom line of the repair vs. replace decision. A recent study shows the national average repair percentage for a front bumper cover is 34 percent, and the average part cost when replaced is $306. Should you consider adding in-house bumper cover reconditioning rather than ordering a replacement part? As an example, if you were able to capture replace dollars to repair dollars with the corresponding greater gross profit, then improving the ratio of repair-to-replace can yield increased job cost profit performance.

Another key metric is understanding the difference about OEM parts margins by OEM brand and its effect on profitability per repair order (OEM, aftermarket, recycled). Measuring parts usage in this way provides a high-level view of parts use, but it doesn't identify all the specific areas that can benefit from additional study.

For example, Company A in Figure 1 averages nine percentage points higher in OEM parts as a percentage of part dollars when replacing front left fenders. Some operators may conclude Company A's average part cost would be higher. But the opposite is true: Company A has the lowest because parts strategy for fenders differs from the others shown, as evidenced by its distribution of alternative parts, which results in lower part costs.

The aggregate part-level data doesn't provide enough information for business analysis. Instead of looking only at the high-level data, shop owners and managers should also apply a more precise approach to their parts distribution strategy, ultimately finding the balance – for the most commonly used parts – that will generate the best profitability.

Another aspect of managing a parts strategy is to understand how part price trends influence results and to identify if your strategy needs refinement.

Based on Audatex data, the average aftermarket part price increased by 5.7 percent in 2009, compared to the same period in 2008, while the average recycled part price declined by 5.7 percent. Recognizing there are many variables that influence the average part price, seeking out this level of data regularly can prove valuable when developing and administering your parts policy based on current market conditions.

By putting the part and labor choices you make in perspective up front, your shop can realize substantial profit improvements. Increasing the business intelligence you have about the most common parts you use will enable you to make better decisions.

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