Dealers, do you know how much of your dealership’s capital is tied up in parts inventory? Do you know how much of that inventory is obsolete? I have visited dealerships with hundreds of thousands of dollars in obsolete parts. Yes, hundreds of thousands of dollars.
One of the biggest reasons for parts obsolescence is special order parts. A service advisor or technician orders a part for a customer, either for a job or at the customer’s request. But when the part comes in, the customer never returns to the shop to pick it up.
This is an easy problem to fix. All you have to do is require prepayment for every special part that is not factory warranty. But hardly any dealers do this. I recently reviewed a report from a list of our dealerships that are converting to our new parts program. There’s a column in the spreadsheet that says “Collects deposits” (on special order parts), with a Yes/No option. I’m not kidding you, at least 90% of dealerships do NOT collect deposits on special order parts. This is insanity!
In every other industry, companies require deposits to order anything. I recently purchased a recliner. Because the store did not have the model I wanted in stock, they had to order it. Guess what, I had to put down a 50% deposit. You can’t even reserve a hotel room any more without paying a deposit!
I don’t know why dealerships do not require a deposit on special order parts. I suppose some service advisors or technicians are afraid to ask the customer for a deposit, or maybe it’s just not policy so they don’t even think about it.
Why invest capital in parts for customers who may never come back? If someone pays a deposit up front, they’ve got skin in the game. There’s a high likelihood that person will be back to pick up the part or have service install it.
This has been a crazy year because of the pandemic. Cash flow is tight, and most dealers are looking for ways to cut unnecessary expenses. Well, here’s one of them. If I were a dealer I would not waste one more dime on special order parts destined to collect dust on a shelf.
If you decide to enact this very simple, money-saving policy, here’s another tip. Don’t allow your parts department to order a special part for anyone—especially colleagues, and yes, that includes friends and family of the dealer—without a deposit, even if the requestor is a good buddy and asking “as a huge favor.”
Maybe a few of your customers won’t like this new policy. Trust me, if they aren’t willing to pay a deposit for a special order part, they don’t really want it that bad and there’s a good chance they won’t come back anyway. You can be nice about it. “I realize we never used to charge up front, but these are unprecedented times.” Who can argue with that? This can be yet another policy change you can blame on COVID-19.
Parts obsolescence is a huge problem in many dealerships. This is one of the easiest, no-brainer policies to implement that will solve a large part of the problem. If you’re not requiring deposit for special order parts, you’re flushing good money down the drain.