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.