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Parts margin legality


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I was talking with a shop owner near us, and the topic of Parts Matrix pricing came up. I casually asked him what type of margins he typically got on parts. He replied, "we just charge list price on all parts. Whatever the customer would pay at the parts store, we charge." Shocked, I asked him how he kept the doors open with such low margins (15% roughly). He replied, "well, you know it's illegal to markup more than 50%, right?" I said, no, I've actually never heard of that in my life. I asked him where he heard that from, and he looked at me like that is common knowledge to everyone, and I should be in jail right now for matrixing our parts.....!

 

Has anyone ever heard of this law, ever, anywhere??

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That is one of the dumbest things I've ever heard. You can charge whatever I want. You think the bottle of water you buy at the store really costs them $1.00 and they sell it to you for $2.00? I bet it costs them around $0.05, maybe! Almost every business owner would be in jail.

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The other shop owner is more then likely mistaken. However, I have seen odd things pushed on auto repair shops/dealers.

 

In my state the used car dealers have to clearly mark a car As-Is or with a full or limited warranty on the window. I had a dealer (one of our frequent customers) sell a used Ford Escape (2003ish) to a customer As-Is. The customer who bought the car compalned months later that the rear shock towers were rusted. These shock towers are covered up by plastic and carpet on the inside. They are not visible from inside or outside the vehicle without disassembly and removal of the plastic componets. The State Att. Gen. Office sent him a threatening letter that if he didn't refund the money for the vehicle they would take legal action against him!

 

After I was told this I jumped on the State AG website and they have a lot of harsh media programs going towards used car dealers. I don't believe the used car dealer did anything legal, and he honestly didn't know about the towers. The vehicle was not inspected by the buyer at a shop before the purchase, and honestly which shop removes plastic panels on an inspection, especially on the rear of the vehicle?

 

I wouldn't throw it past our state AG to threaten a shop owner if they charged "excessively" for auto parts.

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  • Have you checked out Joe's Latest Blog?

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      Auto shop owners are always looking for ways to improve production levels. They focus their attention on their technicians and require certain expectations of performance in billable labor hours. While technicians must know what is expected of them, they have a limited amount of control over production levels. When all factors are considered, the only thing a well-trained technician has control over is his or her actual efficiency.
      As a review, technician efficiency is the amount of labor time it takes a technician to complete a job compared to the labor time being billed to the customer. Productivity is the time the technician is billing labor hours compared to the time the technician is physically at the shop. The reality is that a technician can be very efficient, but not productive if the technician has a lot of downtime waiting for parts, waiting too long between jobs, or poor workflow systems.
      But let’s go deeper into what affects production in the typical auto repair shop. As a business coach, one of the biggest reasons for low shop production is not charging the correct labor time. Labor for extensive jobs is often not being billed accurately. Rust, seized bolts, and wrong published labor times are just a few reasons for lost labor dollars.
      Another common problem is not understanding how to bill for jobs that require extensive diagnostic testing, and complicated procedures to arrive at the root cause for an onboard computer problem, electrical issue, or drivability issue. These jobs usually take time to analyze, using sophisticated tools, and by the shop’s top technician. Typically, these jobs are billed at a standard menu labor charge, instead of at a higher labor rate. This results in less billed labor hours than the actual labor time spent. The amount of lost labor hours here can cripple a shop’s overall profit.
      Many shop owners do a great job at calculating their labor rate but may not understand what their true effective labor is, which is their labor sales divided by the total labor hours sold. In many cases, I have seen a shop that has a shop labor rate of over $150.00 per hour, but the actual effective labor rate is around $100. Not good.
      Lastly, technician production can suffer when the service advisors are too busy or not motivated to build relationships with customers, which results in a low sales closing ratio. And let’s not forget that to be productive, a shop needs to have the right systems, the right tools and equipment, an extensive information system, and of course, great leadership.
      The bottom line is this; many factors need to be considered when looking to increase production levels. While it does start with the technician, it doesn’t end there. Consider all the factors above when looking for ways to improve your shop’s labor production.
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