Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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industry expert / accounting cheaper down the street at another shop and you are cheating them out of potential gross profit. The only answer I would give them is this: When your name is on the building, you can take the vehicle down the street to repair it. Until then, retail prices from our own shop will be charged to the vehicles for reconditioning and detailing. This only makes sense, as your service and parts gross profit helps cover a tremendous amount of your total overhead. For internal repairs, the mini- mum service labor gross profit should be 70 percent, sublet repair should be 15 percent and parts gross profit should be at least 40 percent. I have yet to see where increasing the internal gross profit from substandard grosses to the minimum grosses described above reduces the commis- sionable gross profit that sales commissions are based on. Normally, we see when internals are priced to achieve the above-minimum grosses, the average gross profit on the vehicle increases. Now, what do you do to have profitable parts and service departments? Increasing sales, lowering cost of sales and expenses, having the right managers, and having fully- trained techs with the right number of stalls available, will all result in a higher net profit in the service and parts departments. Expenses are a large part of your key to profitability in parts and service. You can generate all the gross you want, but if you don't control your ex- penses, the gross profit can be overwhelmed, leaving you with little or no net profit. Fixed expenses are expenses that are not directly tied to the production of sales, such as 41 rent, utilities, telephone, ad- ministrative salaries, employee benefits, real estate taxes, data processing, legal and accounting, depreciation, owner(s) salaries, payroll taxes, insurance, etc. For exam- ple, rent would not normally increase just because you sold a few more cars or produced extra repair orders in a month. Selling expenses are those di- rectly related to the production of sales, such as service advisors' pay, payroll taxes, absentee compensation, shop supplies, equipment repairs, advertising, training, data processing, uniforms, health insurance, workman's compensation, etc. Paying your managers and techs bonuses on how well expenses are controlled can help you achieve lower expenses that may not necessarily increase as your sales increase. Since net profit is the ultimate goal you want to achieve, then expense control is just as important as producing gross profit. Normally you should generate approximately $1 of service sales for every $1 of parts sales. The combined average gross profit will be approximately 50 percent of every dollar in total parts and service sales you generate. For example, if your total com- bined sales are $50,000 per month, you should generate approximately $25,000 in gross profit. To be profitable, your expenses would have to be less then $25,000. How profitable you are depends on how well you manage your expenses. Remember, to produce $1 of gross profit you have to gener- ate $2 in sales, while saving $1 of expense achieves the same result. Try both.