Essentials for success in the wholesale parts business - DealersEdge

Volume 11, Number 8 September 2006Essentials for success in thewholesale parts businessAleading consultant offers some tips for parts managers contemplating amove into the wholesale parts business. Plus a handy chart for trackingwholesale-related operating expenses.The old saying in the wholesale parts business is thatwholesale dealers need to be big or they need to getout. And that has certainly been the case for most ofthe last two decades as even giant players like theLustine Organization opted to de-emphasize thewholesale side, leaving that business to the factoriesand a handful of even bigger dealership competitors.The wholesale parts business is fraught with risk andmost dealerships have understandably chosen to stayon the sidelines.But fixed operations consultant Ed Kovalchick,president of Net Profit, Inc., says it doesn’t have to bethat way. He believes that dealerships of any size canprofit from wholesale opportunities if they approachthe business with care and by keeping a close watchon expenses.How to do itFirst, Mr. Kovalchick advises dealers contemplating amove into the wholesale parts business to concentrateon mechanical parts and eschew the crash parts trade.Independent body shop owners have earned a badreputation for ordering body parts, not installingthem, and then returning them to the dealership.Even when the parts are not returned, body shopsas a group have a less than stellar payment record,so who needs the headaches.Staffing, as always, is a key concern. Here Mr.Kovalchick tells his clients to start slowly. Hire apart-time driver/delivery person at first and limitdelivery hours to 10 a.m. to 3 p.m. That scheduleis likely to suit a retired person and dealers get anadded benefit because retired folks tend to takebetter care of company vehicles.Second, building customer relationships is essentialto growing the wholesale business. Wholesalecustomers shop for price and availability. But whatkeeps them coming back to a particular supplier isreliability. Once that trust is established, price becomesa secondary consideration.The third, and often overlooked, element in a successfulwholesale operation is tight control of expenses.There is a lot more to the wholesale side thanan extra salary and inventory carrying costs. ❖

2 - DealersEdge Parts Managerwww.dealersedge.comWhole Cost Analysis WorksheetWholesale gross profit (A) Avg/month Total yearCompany vehicle depreciationFuelInsurance and license/leaseVehicle maintenanceInventory carrying costTelephoneInventory obsolescenceNon-return inventoryBad debtsMonthly billing expenseAccts. Receivable managementReceivable carrying costInvoicesAdvertisingPostageTotal (B)Target 25% or less of the gross (B/A)Source: Net Profit Inc. – Ed Kovalchick, CEO© 2006 WD&S Publishing September 2006