Wednesday, 24 April 2013 19:51

GM Wants Dealers to Stock More Service Parts, Parts Managers and Dealers Debate Costs and Discounts

General Motors is revamping its service parts program and giving incentives to dealerships to increase their inventory for more same-day repairs and to buy more of those parts directly from the factory, Automotive News recently reported.

However dealers and their parts managers have expressed serious concerns about the inventory cost and impact of the Service Lane Parts program. GM estimates that the majority of dealerships will spend $6,000 to $10,000 to buy the additional inventory, but worried dealers also believe it may result in buying parts that won’t move as quickly as GM believes, wasting valuable shelf space as well as money.

GM rolled out the program April 1 as an incentive designed to improve service times and make customers happy. The program is voluntary, but dealers risk losing the discounts they get from wholesale distributors, who could curtail or eliminate their discounts because so much of their business is being shifted to GM.

The automaker’s 4,400 dealerships can earn bonus money if they stock the parts GM recommends and if they buy those parts from the automaker rather than from AC Delco wholesale distributors.

Parts Managers’ forums such as that at DealersEdge.com, are debating the impact of the program compliance  on other programs such as Delco wholesalers and on GM’s Retail Inventory Management (RIM).

Several parts managers at smaller dealerships were focused on the 10% Customer Special Order (CSO) surcharge which they felt would impact their body shop parts orders.

However, the biggest immediate impact is likely on AC Delco’s Wholesale distributors, who are concerned they could lose 30% of their volume from GM dealers. If so, it means Factory Motor Parts stands to lose about $25M per year as a result of this program. “We are going to drop our prices and go after your wholesale customer. GM has left us no choice,” said a rep quoted in the DealersEdge.com forum.

Some parts managers are becoming very concerned that “using experience, intelligence and common sense to create a system that works to manage obsolescence, return on investment, maximizing gross profit, phasing in the right parts and days of supply,” are becoming devalued.

Worried dealers elsewhere say GM’s incentive payments won’t be enough to offset the higher cost of buying more parts from GM and fewer from wholesalers, which typically sell at a 10–20% discount from the factory’s price.

Some dealers also have doubts that it will improve same-day service rates because the new system will reduce their flexibility to search for needed parts ‘on the fly’ from local distributors or other dealerships because doing so would hurt their chances to earn bonus cash.

Steve Hill, vice president of customer care and aftersales for GM North America, acknowledges some trepidation among dealers, but he says many who have studied it see the advantages for their bottom lines and for retaining service customers. Hill says the combination of offering in-and-out service and more original-equipment parts will help differentiate GM dealerships from independent mechanical shops.

Similar to GM’s facility-renovation program, GM wants uniformity in parts and service. Some dealerships have high same-day service rates, but many don’t, says Tim Turvey, executive director of customer care and aftersales. “We wanted to have more of a ‘McDonald’s approach’ to make sure we have a certain core group of parts available to the consumer to fix their vehicle right then,” Turvey says.

Under the new system, GM has added dozens or hundreds of parts to the list of items that dealerships are expected to keep on the shelf for same-day repairs. The list varies by store, based on past ordering. Items range from radiators and shocks to spark plugs and weatherstripping. GM says it has overhauled its parts-distribution warehouses to get supplies to dealers faster and on the same day they’re ordered. If the order can’t be filled that day, GM will pay for overnight delivery.

A number of dealers consulted believe they’ll break even because their end-of-the-month bonus payments will outweigh the higher inventory and purchase costs. Others think they’ll lose money.

To earn a bonus, dealers must purchase at least 70% of the dollar volume of service-lane parts from GM. And they must use at least 70% GM or AC Delco parts on repairs to GM vehicles. Hitting those thresholds pays a bonus equal to 0.25% of the dealership’s total parts purchases. For example, a store that orders $100,000 in GM parts during a month would get $250. Dealerships that crack 90% on both purchases and repair-order sales can max out at a 4.25% bonus, or $4,250 a month on $100,000 worth of parts.

Most dealerships that hit the 4.25% level should come out ahead, says Steve Hurley, dealer principal at Stingray Chevrolet in Plant City, FL, and co-chairman of the Chevrolet National Dealer Council. Hurley’s store should come out $40,000 to $50,000 ahead under the new system, he says.

Rowerdink Inc. is a Grand Rapids, MI, wholesale distributor to GM dealerships in Michigan. In the Detroit area alone, the company expects to lose roughly half of the $10 million revenue it makes from more than 50 GM stores, says Chris Mauro, Rowerdink GM dealer account manager. “It could force us to change our discount program,” Mauro told Automotive News.

A large Midwest Chevy dealer says he figures the new system will cost his store more than $100,000. He has traditionally bought a large amount of inventory from local wholesalers. The dealer also says he’s not willing to let a repair drag into the next day as he waits on an overnight delivery from GM. His parts manager will continue to buy those last-minute parts through distributors, which will count against his purchase loyalty. Hill says that even if a parts manager can run down that out-of-stock part on the same day, it’s not as good as having the part already on hand.

 

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