From the Desk of Mike Anderson: It’s Time to Create New Parts Code
Written by Mike Anderson, Autobody News
Published February 11, 2019
It’s time for this industry to resolve the parts code mess.
You probably know what I’m talking about. It’s no secret that a lot of collision repair shops, particularly those on direct repair programs, price-match parts. Rather than use an alternative (non-OEM or recycled) part, they put a new OEM part on the vehicle, billing for it at the alternative part price.
My goal here isn’t to debate whether this practice (or DRPs in general) is good or bad. Those are business decisions that aren’t the focus of what I’m calling for here.
But I am saying that the price-matching practice has negative consequences for shops.
First, the paperwork that shops give to their customers should always accurately reflect what was done to the vehicle. If you install an OEM part, the paperwork given to the customer should state that, not inaccurately indicate that an alternative part was used.
Second, price-matching makes it tough for a shop to have accurate financial reports. Let’s say a shop chooses to use a new OEM part, but because of how it is measured under a DRP, the part remains on the estimate as a non-OEM part. When that data gets transferred into the shop’s management system, the sale goes in as a non-OEM part, but at an OEM part cost. The system ends up overstating---sometimes wildly---the shop’s gross profit on non-OEM parts and understating the gross profit on OEM parts.
I have a degree in accounting, and I work regularly with more than 350 shops, coaching them on their financials. I can’t tell you how many of those financials I look at show that the shop made, say, 70 percent gross profit on aftermarket parts and lost money on OEM parts. They didn’t really lose money on the OEM parts, and they didn’t make that much money on aftermarket parts. It’s all a coding issue. And I can tell you, accountants and bookkeepers spend countless hours trying to figure out why the gross profit information isn’t right.
So why not switch the parts code from alternative to OEM when transferring to the management system? One reason: Some shops offer some insurance companies a discount on OEM parts. So they may already be taking a hit by buying an OEM part but only charging for non-OEM, and then get hit again with the OEM discount to the insurer.
A third potential downside to all this for shops: It’s known that many automakers are moving toward using scorecards to evaluate the performance of their certified collision shops. Shops that are certified and have DRP agreements will be faced with the risk of coding an OEM part they use as an alternative part to not hurt their DRP score, only to have that hurt their scorecard for OEM parts usage with the automaker certifying their shop.
Some people will suggest that price-matched parts could be coded as “opt-OE.” But that label has become so convoluted and misused as a parts type category. Some automakers have an “opt-OE” part that they sell, for example, and others don’t recognize that label at all. The California Bureau of Automotive Repair has said “opt-OE” and “alt-OE” aren’t adequate as parts descriptors.
At the end of the day, I believe there’s a simple solution to all this. We need to recognize a new parts-type code in the estimating and management systems. If you price-match a part, you use that new code so your management and accounting systems recognize the sale and cost as an OEM part. You get accurate financial statements without skewing your OEM or alternative parts usage numbers with either an insurer or an automaker.
Now, some stakeholders in the industry may not want this to happen. But it’s not fair for shops to suffer from the current accounting nightmare and the risk of “being damned if they do, damned if they don’t” in terms of competing scorecards.
I’m imploring the organizations in our industry that can make this happen---the information providers, CIECA, the Collision Industry Conference, the trade associations, etc.---to make this a priority.
It’s time to make this change.