Saturday, 01 December 2001 17:00

Body shops return excessive number of parts

Written by Richard Neubauer

From California to Texas, OEM dealer parts managers are sounding off about the growing problem of excessive returns by their body shop customers. The parts managers say their already paper thin profit margins are being eroded by body shops returning more and more parts, both damaged and undamaged. There are reports of return rates as high as 25% from some shops. 

Parts managers offer several reasons for the excessive returns, including: cycle time pressures that encourage ordering parts "in case we need them"; parts orders based on estimates written by inexperienced insurance adjusters; and outright fraud.

Tom Kenan is the long-time parts manager at Pearson Ford in San Diego, California, a big wholesaler of sheet metal parts. He complained, "It's to a point where it's almost unmanageable. I have two people who spend their entire day checking in returned parts and writing credits."
 
Kenan acknowledges that a certain percentage of sheet metal parts will be returned because they arrive damaged, and he has no problem with damaged parts that are promptly returned. "But with these DRP programs and the tight turnaround times they place on body shops, the shops are ordering things they don't know if they'll need, 'just to be sure.' Many of these parts are inside things like an inner wheel house panel."
 

Kenan said that such parts are only stocked at national parts depots, so he ends up special ordering and then returning them. "And Ford is now charging us a 20% restock fee on these parts." The problem, says Kenan, is that most dealers don't pass the restock fees through to the shops. They just absorb them, fearful that the shops will start ordering their parts from another dealer who promises no restock fees.

Restocking charges raise a fuss

While Kenan admits, "I'm as chicken as the next guy (about charging a restock fee), and I certainly don't want to run my customers off," he said that with returns now averaging 13-15%, he's had to start charging a restock fee to shops that abuse the system. "It's causing quite a bit of flack."

Insurers are squeezing shops

"Oh, man, it's terrible," said Jeff Dahl, assistant parts manager at Crown Dodge in Houston. "Some shops will order parts just to get the invoice, then return them." Dahl characterized most of his customers as "real good, straight up guys. The insurance companies are squeezing them tight, though."

Despite high returns, Crown Dodge charges no restocking fees because "the competitive market in Houston won't permit it," according to Dahl.

Beto Pena at Toyota of Irving (Irving, Texas) said that while he couldn't point to any increase in returns, "We're fully aware of when shops are ordering parts they most likely are not going to use - things like frame rails and aprons. They just want the invoice."

Pena said that his returns policy remains "very lenient. There is no restock fee and we're not going to refuse any reasonable return. Our market is too competitive."

Recently, he had a regular customer drive up with a truck load of parts to return, some more than six months old. "He'll get a courtesy call from me, explaining our policies."

Pena said he expects returns of 7 - 9%, but that 11% or more makes him take notice. He noted that smaller shops that don't have a parts manager are more likely to delay in returning the parts. "They get behind. We have an open door policy to help them. Some will take advantage of us. But you know, when I look at it in relation to the tragedy in New York, it doesn't seem like such a big deal."
 

Sticking to invoice terms

At Gilman Mitsubishi North in Houston, Parts Manager Lannie Appleby was not overly concerned with returns but noted that, with regard to restocking fees, "More and more we're sticking to the terms of our invoice," which he said provides for restocking fees on special order parts and requires that all parts be returned within 30 days. "If enough dealers do this, maybe it (late returns) will slow down."

During last summer, repair shops and dealers in Southern California received various faxes about the problem from a company called Automotive Consulting, Inc. with a Riverside, California address. There was no phone number and the street address given on the fax was an empty lot. The fax to dealers suggested that if they didn't start charging restocking fees and reducing excessive discounts, they would be forced out of the wholesale business

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The fax to auto repairers, sent under the name of "Automotive News," warned shops that dealers would soon be charging restocking fees and rolling back discounts. One parts manager who had seen the hoax fax said he only wished it were true, but that it was probably the creation of a frustrated parts manager.

Curt Lamb, parts manager at Norwalk Toyota near Los Angeles, said he believes the increased returns are the result of "inexperienced estimators and adjusters trying to cover their butts" by ordering parts they aren't certain they will need.."

Rick Tibbits of Young Chevrolet in Dallas agrees. "A lot of the returns result from ordering off the estimate instead of looking at the car." He indicated that body shops will normally return 12 - 14% of parts, but that when a shop goes to 20% "we know there's some fraud going on and we have to weed them out."

Working off a gross margin of only 12% after aggressive discounting, Tibbits says he will charge reboxing fees and/or a 15% restock "only when the situation calls for it. We certainly try to work with our good customers."

Toyota allows dealers 7% in returns

At Norwalk Toyota, returns from body shops are running 15% and higher, with one body shop regularly returning 19.5% of its orders. Fraud plays a role. "Yesterday, my driver said the shop owner asked him for the invoice, made a copy of it, then handed it back and said he didn't need the parts." Toyota allows its dealers to return without charge up to 7% of their parts orders.

"We're running at an overall returns rate (mechanical/collision) of 7.6% this year, so I don't see any need to impose a restocking fee on our customers," said Lamb. "It's just a cost of doing business."

Nissan implements new policy

At Miller Nissan in Van Nuys, California, part of the huge Miller Automotive Group, Robert Kuwahara has 22 years of experience in parts. "It's become a serious problem over the last five years," Kuwahara agreed. "It's the integrity of some of the shop owners - they just don't care."

He too, said one problem is shops placing orders off the estimates written by inexperienced insurance adjusters instead of writing their own sheets. The problem has taken on new importance to Kuwahara as Nissan recently implemented a restocking charge on supplemental returns. With returns running 10% - 20% from some shops, he fears the dealership will be taking a hit. "It's the 'C and D' class shops that are the problem, not the 'A and B' class operations."

Kuwahara predicts that with a gross profit margin that he struggles to keep at 20%, "You'll see more dealers getting out of wholesale parts, in large part because of the returns problem. We need help."

It's a different story at Long Beach (Calif) BMW, where parts manager Charles Berthon says returns are not an issue. "They stay under 10% most years." Berthon supposes that he has less of a problem because the shops working on BMWs tend to be 'A' class shops. "Most of our returns are for body parts that arrive damaged at their shops. It's obvious when it's fraud, because they'll order something like a hood and then return it." Berton recalled cooperating with the California State Bureau of Automotive Repair (BAR) several years ago when they shut a shop down for fraud, but he noted, "Most of our customers are really good, ethical body shops. All they want is the part, on-time and undamaged."

Phoenix dealer says there's no loyalty

In Phoenix, Arizona, where the gross profit margins on parts are often thinner than in California, David Priest at Brown & Brown Chevrolet, one of the nation's largest wholesalers, has seen a deterioration in the relationship between repairers and dealers. "They don't seem to be concerned about our returns problems. They don't see us as business partners. There's not much of a loyalty factor any more."

GM wants returns in 30 days

Brown & Brown sells $3-4 million of wholesale parts a month at a gross margin that has been cut to 12%. Returns are up, running at 10 - 15% from most shops. "We see a pattern of returns based on how organized the repair shop is. Successful shops return the parts on a regular basis, often weekly. The marginal operators let them gather Bondo dust for six months, lose the invoices, and then tell us to send a truck over for all their returns," said Priest. He noted that General Motors has started to tighten its return policies, and will now accept returns on sheet metal for only 30 days. He's afraid that this will force dealers to change their own returns policies.

Still, Priest admits that his biggest returns problem is on sheet metal that arrives damaged at a shop. "In many cases, we encourage the shop to repair it and we'll reimburse them, rather than deal with a return."

Is a restocking fee in the works at Brown and Brown? "Not right now." But if Priest were to implement a restocking fee, he would start with shops that order parts for a heavy hit, only to return all of them when the insurance company declares it a total loss. "They jump the gun on $5,000 worth of parts."

"What the heck is this?"

And what about the shops' complaints that when they open the box, what's inside isn't what they ordered? "Many times, it's the result of fraud that we didn't catch," explained Priest. An unethical shop will clean up an old part and stick it back in the box, returning the box for credit. "Sometimes it's not even the same item. We have four people working full-time on returns, but they can't visually identify every item."

At San Diego's largest GM wholesaler, John Hine, Fixed Operations Director Bill Brumbaugh noted that "We've definitely seen an increase in returns." And, like parts managers we spoke with who did not want to be named, Brumbaugh suggested that the result of this will be fewer wholesale dealers and, in the end, higher prices charged by those dealers that remain.

 

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