A Tale of Two Markets - Dealing with the Times - Engine Builder Magazine

A Tale of Two Markets – Dealing with the Times

A couple of months ago, I approached this industry’s parts sales problem through some statistics. Now I’d like to look at things from another angle, or maybe two.

I don’t think there is one reader who would argue that engine parts sales today are much different than they were even 10 years ago. Though it doesn’t seem all that long ago, 10 years ago we were still complaining about catalog sales. We still called it mail order and the Internet represented something like 10-15 percent of auto parts sales. We learned in my last column that the figure is over 30 percent today, and a customer has countless websites to turn to for vast resources of parts from around the world.

Of course, the typical automotive machine shop or engine builder has access to more parts, more resources and more suppliers as well. This in turn gives you an opportunity to service your customers like never before. What we seem to have here is a tale of two distinctly different marketplaces; your business or the vast number of Internet businesses; two different markets, with two different core consumers: yours and the Internet shopper.

It was the best of times, it was the worst of times.

In A Tale of Two Cities, Charles Dickens wrote of the problems between peasants and the aristocracy of Paris prior to the French Revolution and of the parallels in London in the same time period. While life across the channel was similar, only one country sucummbed to revolution. Those who have followed this column might know where I’m going with this, and know I’ve been calling for a form of revolt for several years.

We may not have peasants and the aristocracy, but we do have two different consumers, and many believe that monetary differences highlight this divide.

Consumer #1, simply stated, reminds us that we all want a better deal when it’s our money being spent. We all shop around some when we have to make a major purchase. Some of your customers believe they can shortcut the system by purchasing their own parts from a discount supplier, cheating you of sales that would normally be made alongside the machining operations, unquestionably part of the package in any other industry.

Consumer #2 is your traditional automotive customer who comes to the shop looking for the complete package. This is the customer we all want. They need help, they don’t know what they’re doing or maybe they got a terrific referral. Either way they are willing, or know no other way than to spend their money with you. But while he may be naive, this consumer is no fool and expects to be treated fairly. His inexperience does not give license to steal. If you want to create more online parts shoppers, just take advantage of your trusting customers.

In your business, labor is the breadwinner with the majority of income for the shop coming from the labor that you perform. This was not always the case. Thirty years ago, many of the shops I dealt with claimed that parts sales accounted for almost half of their financial income. Sadly, parts sales do not claim anything near that number today if we’re really losing 30 percent to Internet sales.

Much like the parts, labor profits may come under attack from time-to-time as well. We all know the home-based shops with their lower overhead who can put pressures on commercially located shops to compress their prices to compete. Business savvy machine shop owners understand the discount-pricing trap and establish value on their services according to their knowledge and investment with focus on long-term profitability, regardless of the lesser priced and equipped neighboorhood competition.

Much like the resolve of the business owner who knows he must get his price for his labor, I believe it is that same resolve needed by all to profit, at least some on the sales of parts used to accomplish your jobs. The old expression about not bringing your eggs to the restaurant still holds true and by all accounts will not be changing in the near future. You can’t say the same for the carry-in parts to the machine shop. So why do so many shops allow the consumer to be in charge of the job by letting them be in charge of the parts acquisition?

With all the availability and supply options for the shop, price is not as big a deal as it used to be. And who says you the builder have to be the cheapest place to buy that part? Look at any other field. The builder or manufacturer is probably the most expensive place to get your component because everyone knows the builder is going to profit a little, it’s part of the job. Why should our industry be any different?

From behind the parts counter I often hear my customers complain, “What can I do? The customer said he was going to get his own parts.” Or, “The customer already had his parts when he came in.”

To address this, let’s start by getting the obvious off the table. If you’re doing labor for a car dealership or an implement dealer, there will be times, probably most of the time, that they will supply their OEM parts. This is usually for manufacturers’ warranty conditions or simply because they stock the parts, not because they cost less. This is a given, we know it and accept it when we choose to do business with this customer base. If you’re doing machine work for another engine shop, that builder will more than likely supply the parts. Again, this is what we’d all expect in a business-to-business relationship.

There are very few excuses I can think of past this point for not expecting to get the part sale. Yes, I’m saying that our mindset be that we expect to succeed in getting those sales. Unfortunately, I see so many shops that are expecting the customer to be a problem and in an attempt to avoid conflict they don’t even try to sell the parts. Some don’t even ask if they can quote the parts. It’s time to stop that thinking and turn this around.

I think you’d agree, your business needs all the income it can generate. And because you have such huge resources available to you, you should take control and ask for the info you’ll need to get that sale. It seems we’ve stopped selling altogether at times. Remember, I said there are two markets still operating and one of them is “yours.” It starts with your own way of thinking transformed into your sales pitch.

I see the start of the problem when I hear how often the shop does not get the full information about the vehicle. Too many times we assume that, “they’re all the same.” But they are not and you will find it much easier to sell parts if you start out getting all the information down on a workorder when you first receive the job. This leads right into your intent to sell the parts for their “2000-whatever with the blank-liter V8 with an eight-digit VIN number or letter.” Now you’re fully capable of quoting their job with parts and labor.  Simply have an attitude or assumption that you will be supplying parts.

Yes, we have two markets, two consumers. One comes to you willing to spend their hard-earned cash to get and pay for the complete job. Now let’s look at the one who wants to supply his own parts. I hear over and over about the customers who state that they’ll be buying their own parts or even already have. At least if they’re still talking about buying you have a chance to get into the fray. But what if they’ve already made the purchase – is it too late?

If we approach the problem with the same assumption of going to make the sale,” but just adjust that to, “I’m going to make a profit,” we do have a way to respond. First, make sure they’ve made the correct purchases. This is going to affect your job and may show a problem or an opening where you suggest they return these wrong parts and point out how you are here to make sure they get the correct parts.

But if everything looks good and your customer isn’t in the mood to return the whole works, you have no choice but to make sure you prosper a little bit more from your labor. I’ve suggested several ways you might do this over the years, and still believe these tried and true methods can still be employed today.

One shop owner told me that he quickly estimates the dollars lost from the loss of parts sales for the job and then calculates the profit dollars lost. Next he makes sure his labor costs make up some or all of those losses. This means he must either charge more for his labor or find additional labor to bill for.

Look, I’ve preached the advantages of a higher price schedule that you can discount when the customer purchases his parts from you for years. And don’t worry, this will work well for quoting if you continue assuming you are going to get the parts sale and state your low prices when called. Just make sure you also state that these are the labor costs if the customer buys parts from you.

I hear scoffs all the time from neighsayers who believe they can’t work with two price schedules because the guy down the street won’t. I can almost guarantee you that your competition is making adjustments to their prices at this point as well.

If you’re in this crowd, you might be wondering, ”what else?” Sometimes the best answer to a question is another question. “Are you charging for all the labor you’re doing?” You perform a lot of small jobs during every operation. Some are easy to assume would be part of a total operation – but they do not have to be. If your client shows up with parts, you will have to spend time going through the boxes, measuring and checking. Time is money, so charge for this. These are also the things you can point out would be included when you are selling both parts and labor. And be up front in a nice way with the customer. Just explain that if any parts they’ve supplied don’t fit the build or work correctly, you’ll bill time and materials to make it right.

In my last column, I introduced the contractor who built my house. I about went into cardiac arrest when I saw the cost of interior doors on that project. I was somewhat relieved when I realized that figure covered the doors as well as the labor to install them. There was no negotiation at this point. I didn’t know the hours that were calculated, nor the cost of the materials. This is where “kitting” can work for you.

Kits can be a group of parts, like an engine master kit. They can also be a group of labors like boring, honing, pin fitting, cleaning and installing plugs and camshaft bearings. Maybe you can reduce the total of these operations and offer a package to encourage customers to buy their engine kit from you so that they will get this special price. Or maybe, as with my doors, you can just quote the total price of the parts and labor. You’ll probably need to invoice parts and labor separately, but by that point you’ll already have the job.

This also can be a benefit in invoicing. List a kit price, which consists of this list of parts – by name only. Too often we itemize by part number. Many customers immediately take these numbers and go shopping on Google. Then you get accused of price gouging.

There are probably additional strategies you could use to promote parts sales that tie them to your labor costs, and if you have one I applaud you for putting it into action – let us all know what it is by sending a note to me at [email protected]

Recognize that there are two markets functioning side-by-side and THEIR market (the Internet) is growing, while YOUR market is shrinking. If you’re tired of these large aristocratic operations stealing your profits, then you must join up with the peasantry and revolt. This revolution won’t be waged with pitchfork and spade, but through marketing, policy and price. Some sheer determination and a little defiance won’t hurt, either.

Today, I saw pictures of some solid roller lifters that were marketed and sold as a major brand item. They failed at high RPM and about sawed an aftermarket block in half, setting the consumer back thousands of dollars. The customer had supplied the parts, but the builder chose to use them.

If he had been in charge of his build and had made sure to use quality parts purchased from trusted suppliers, he would have saved his customer thousands of dollars and tons of grief. He would have saved himself some grief as well, because you know who was first to come under fire for shabby work.

Sometimes we have to make hard choices – just as Dickens said, “‘Tis a far, far better thing that I do, than I have ever done.” ν

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