How to Modernize Fixed Ops at the Dealership with 100% Absorption Rate [VIDEO]

Modernize Dealership Fixed Ops with Online Parts Store and 100% Absorption Rate

Imagine booking a room at a name brand hotel and upon checking in you rush into your room to charge your phone, only to discover that it is not equipped with USB ports. You then scramble to get your portable charger only to find it’s drained as well, and when you attempt to plug it into the wall to start recharging, you find all the electrical outlets loose and defunct.

Would you get the impression you are in an outdated hotel? Do you think this experience alone could be enough to deter you from booking there again in the future? Assuming the hotel is a national brand, could these things deter you from booking again with that brand altogether?

For most of us, these experiences would be a turn off and could potentially hurt the hotel’s business with top customers. And in the grand scheme of things, they are relatively minor inconveniences.

Convenience and Online Parts

Now imagine you need to replace the tires on your truck, or maybe you just need new windshield wipers. You’re tech savvy and accustomed to convenience so you load up the Amazon app on your smartphone and start searching for these items. You see a variety of options which you compare.

One option that seems good is an Amazon Prime item that will ship free in two days. But you need the wipers today and so you search around for a local dealer where you can place the order online and then go pick up the item.

Now you see listings for wipers from AutoZone, Advance Auto, O’Reilly Auto Parts, and as luck would have it, the local dealer where you purchased your Jeep just last year. The local dealer price is higher but only because it’s the original equipment manufacturer, and the price isn’t so high that it outweighs the benefit of going in to pick it up.

You place the order online and 20 minutes later you show up at the dealership to pick up the wipers, only to be informed that they don’t have the part you ordered in stock and they will have to order it.

Can you imagine the let down your customer would feel if this happened to her?

This is a real scenario that can easily happen to any dealer. And it speaks to the importance of having a truly buttoned up online parts store for your dealership. The idea of selling OEM parts online for your dealership might seem simple enough, but there are several factors at play in order to make it a success. From technology, to inventory, to shipping, and of course personnel.

Auto Parts and Shrinking Counter Sales

The auto parts business in the USA alone is about an $8-10B a year industry, of which more than $1B include OEM parts. The year-over-year growth of this market is about 13%, and the percentage of sales that occurs online is already at about 85%. This volume of online sales is the reason dealers across the nation are seeing counter sales plummet.

As you can imagine, competition in this space is fierce, which naturally causes margins to be slim. For most Parts Managers, selling parts with slashed margins is about as enjoyable as driving with slashed tires. Yet, that’s the reality parts sellers face when opening up an eCommerce platform. The comfortable profit margins you’re used to as a result of markups at your over-the-counter business shrink – a lot – in the more competitive online space.

Reality is, there’s nothing you can do about slashed margins. You can’t cheat the system, since online retailers like Amazon and eBay reward competitive pricing models. If you sell brake pads at cost+35% online, you won’t be shown to customers.

So if profits in selling auto parts online are slim, why should dealers consider doing it?

This is precisely the question we set out to answer in a recent webcast with RevolutionParts CEO Ibrahim Mesbah, and auto retail marketing and e-commerce specialist Dave Rozek. Below is a short preview of our conversation.


Selling OEM Auto Parts Online Isn’t About Margins

Selling on eCommerce platforms isn’t about winning the profit margin game, it’s about gross profit and absorption rate. Online is a volume play, and selling more products opens you up to benefits and incentives that you can’t find at your dealership.

For one, more sales equals more customers. And that means more opportunities for you to provide excellent customer service that will keep buyers coming back to you. Shoppers are savvier than ever and have more choices than ever, so when you meet or exceed their expectations, you stand out.

Another bonus of high-volume selling is OEM kickbacks. In fact, these backend manufacturer incentives are where many parts managers see the bulk of their gross profits from online revenue. You probably can’t move enough product at your counter to reach volume quotas, but you certainly can online where the reward can be huge even at cost+2%.

100% Absorption Rate

Absorption Rate in Fixed Ops is when gross profit covers 100% of dealership expenses. How absorption rate is defined and calculated can vary from dealership to dealership, but the idea is consistent.

As Rozek explained,

“We sell a decent amount of cars and we do a pretty good job in our parts department already, but we’re always looking to improve because right now we’re realizing that our counter sales are shrinking. We realize that we either have to get [into an online solution] or we’re going to lose and we’re gonna start losing money.”

What Rozek is speaking to are the things we addressed earlier. With shrinking counter sales, listing and selling parts online drives website traffic and new customers that would not otherwise find their way to your store. So not only do the gross profits from parts sales help with absorption rate, they also are alleviating some of your advertising costs to reach new customers.

Mesbah illustrates the point best in the video by paraphrasing,

“The average dealership website includes a parts section. And today’s consumer commands a certain experience. Your customer has options such as Amazon, eBay, national chain brands, and competing dealerships. Convenience is a key factor for today’s auto parts buyer, who you risk alienating by not modernizing the experience.”

About the Podcast and Video

The video featured in this post is a mini preview of a conversation that took place in April 2019 with Rozek and Mesbah as part of our Advanced Auto Retail Webcast Series, brought to you by RevolutionParts. The podcast featured in this post includes the complete edited version of this conversation.

To view the original webinar recording , follow this link and register with the series. Upon doing so you will given a link to the playlist that includes this session and all others within the series.

About RevolutionParts

RevolutionParts accelerates part and accessory sales for automotive dealers. The company is focused on making it simple and affordable to sell across multiple channels, including e-commerce, online marketplaces, and wholesale. The RevolutionParts platform powers more than $210M in sales and reaches millions of unique buyers globally.

For more information visit www.revolutionparts.com


About the Author

Ryan G
Ryan Gerardi is Chief Editor of AutoConverse Magazine and Executive Producer and Host of the AutoConverse Podcast and Live Weekly Broadcast. He is also Founder & CEO of AutoConversion with nearly 20 years experience in the automotive industry. Ryan concentrates his efforts today on exploring people, ideas, and technologies related to how we get around and how we are connected.
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