Why Should Your Shop Allow Customer Supplied Auto Parts?
In our last blog, we discussed the problems shops that allow customers to supply their own parts have. There are always two sides to every story, however. Here we will talk about why some shops choose to do repairs using customer supplied auto parts and one possibility for making this practice work financially for the shop and the customer.
The Customer Is Always Right
This phrase, “The customer is always right,” was framed by three businessmen you may have heard of – Marshall Field, Harry Gordeon Selfridge, and John Wanamaker. While it’s not actually true, as anyone who has worked in customer service will tell you, it is true that management has to respect the customer. The customer must feel that respect in order to maintain a good working relationship with the auto shop. That relationship and the trust it’s built on are what keeps customers coming back to a shop over time.
The auto parts market is changing rapidly. Because of the internet, consumers have a variety of different vendors to buy from as well as many different sources of information to evaluate the quality of those parts. Most customers are not experts about auto parts, but telling them that or refusing to use the auto parts they supply can be a tricky conversation for a manager to have. If your customer service department doesn’t do it right, your shop will lose customers. They will get offended, leave, and never come back.
Customer Supplied Auto Parts
It’s easy to say, “This is our policy. If you don’t like it, go somewhere else.” It’s harder to try to figure out how to work with customers who are aware of how a rapidly changing auto parts industry might benefit them. When prices are transparent and there’s competition for customers, the price of auto parts will come down over time. This may not be good news for auto shops that need to make a profit via higher priced parts, but it’s true.
Cars are expensive, repairs are expensive. The general population relies on cars to get around but doesn’t have stashes of cash lying around. Some of those people will go online to see if there’s a way to limit the damage a car repair will do to their budgets. They probably do not understand how using cheaper auto parts hurts them and the shop, but they do understand saving money in the moment. They also understand the concept of markup.
One Idea: Single Service Auto Parts Warranties
In a recent forum comment, member Jose Garcia proposed getting around the liability and cost issues involved with customer supplied auto parts by selling warranties on them through a third party like SquareTrade:
“Negotiate with the insurer to receive a percentage of warranty sales. The warranty includes parts and labor; if the part fails, the shop isn’t eating any unreimbursed labor expenses, and neither is the customer. The shop has an additional revenue stream as a percentage of warranty sales.”
If the shop is willing to use less expensive customer supplied auto parts as long as the customer buys a warranty, then the potential loss to both parties if the part fails is mitigated. The auto shop might even get more work if the parts being supplied fail more often. The customer gets a lesson in why exactly the shop doesn’t want to use customer supplied parts while still being able to take that risk if they are willing to purchase a warranty.
As Mr. Garcia says, the concept is as yet untried. To work well, this would have to be an industry-wide change, but industry-wide change is coming, whether auto shops like it or not. Price transparency is going to make this type of customer demand more and more common. Will your shop be able to survive and thrive if you turn them away?
The “revenue stream from the sale of single service warranties” could make up for the price markup lost to customer supplied parts. If the customer is happy knowing he got the best price deal on parts and the auto shop limits its liability and still makes a profit due to warranties, who loses?
Ultimately, a shop’s profitability depends not on the price of auto parts but on its loyal customer base. Every auto shop needs to decide for itself what the risk of alienating that customer base is worth when determining what their shop policy is on customer supplied auto parts.
Jerry makes a valid point that many of us have recognized for many years. The gross profit dollars generated by labor is not enough to operate a modern, well equipped and successful automotive service facility, that treats their staff with adequate pay and benefits that encourages an interest in automotive service as a career.
In my case, even 1.5 times labor is not enough. We would have had to charge 1.9 times our average effective labor rate, as our new door rate, if we eliminated parts gross profit all together or 1.6 times, if we set a goal for gross margin on parts of 15%.
Rather then change a model that works for the majority of our customers, we just decided it was time we made sure we were being fair to our best (typical) customers.
We switched our presentation on customer supplied parts 18 months ago to the following:
Our price for the “service package” when installing customer supplied parts is “Our normal price for the service, including the cost of the part, plus our normal parts margin on the part, plus labor at our normal charge for the job, plus supplies, MINUS our cost of the part.
We calculate the job like we were using our parts for the service(all in as described above), subtract the cost of the part and that is the price we quote for the job. Of course quick math will tell us that using this approach does not save the customer money, unless they can buy parts at cost, cheaper then we can.
Our primary intention is not to discourage the customer in the fact that we can’t help them save money by supplying their own parts. Our primary intention is to generate the same gross profit dollars as we would have if we were doing the service for our best customer(who probably is not asking us to supply their parts).
For me, it’s about gross profit dollars generated for a specific period of time that I have my tech and service bay/equipment tied up.
Every owner has to make their own decision, in this matter.
I used this exact approach last week when I received a phone caller request an estimate for a service, if they supply the parts. I always start with explaining that supplying their own part will not save them money, because the price for the job is our regular price, less the cost of the part. So unless they are buying the parts cheaper then we are, they won’t save money, if that was their intention, which it usually is. His exact comment was, “so you don’t do it like most shops” (he had obviously called around).
We did not get the job and mostly don’t. I am good with that.
Randy
It’s not just the liability, but it often ends up costing the shop more than the job is worth. If the part doesn’t work the shop loses a lot of time verifying the part is bad and then who is the customer going to blame? The shop of course. Who pays to do the job over? If the part doesn’t fit how much more time does the shop lose?
Not to mention, shop labor doesn’t pay all of the bills, parts sales does. If there is other work to do, why take it on. There are exceptions of course like obsolete parts or non electrical or non wear parts.
What about liability. I was of the understanding that if a customer supplied their own part the liability would fall on us instead of the jobber if something should happen from a defect which the jobber would then deal with the manufacturer.
Look forward to your comment.
Thank You