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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?

         13 comments
      Most shop owners would agree that the independent auto repair industry has been too cheap for too long regarding its pricing and labor rates. However, can we keep raising our labor rates and prices until we achieve the profit we desire and need? Is it that simple?
      The first step in achieving your required gross and net profit is understanding your numbers and establishing the correct labor and part margins. The next step is to find your business's inefficiencies that impact high production levels.
      Here are a few things to consider. First, do you have the workflow processes in place that is conducive to high production? What about your shop layout? Do you have all the right tools and equipment? Do you have a continuous training program in place? Are technicians waiting to use a particular scanner or waiting to access information from the shop's workstation computer?
      And lastly, are all the estimates written correctly? Is the labor correct for each job? Are you allowing extra time for rust, older vehicles, labor jobs with no parts included, and the fact that many published labor times are wrong? Let's not forget that perhaps the most significant labor loss is not charging enough labor time for testing, electrical work, and other complicated repairs.  
      Once you have determined the correct labor rate and pricing, review your entire operation. Then, tighten up on all those labor leaks and inefficiencies. Improving production and paying close attention to the labor on each job will add much-needed dollars to your bottom line.
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