Time to look at hidden costs in service department
From the September issue of UCD
Between preparing cars for the front line and completing warranty work for customers, the service department fuels nearly every aspect of a dealership’s success—including sales, collections and customer service. Yet it is also one of the largest cost centers, requiring constant review and oversight to keep expenses in line.
One of the biggest drivers of service costs is parts. With pricing influenced by market conditions and potential tariffs on imports, managing parts expenses has never been more critical for dealers, particularly in the buy-here, pay-here industry.
The first step in controlling expenses is gaining a clear picture of current spending. That means going beyond simply reviewing the total cost and taking a deeper dive into what’s being purchased, how often, and at what price. “You want to know what parts you are using on cars and how many cars you are putting them on,” said NIADA 20 Group Moderator Brad White.
This kind of analysis often raises further questions in the shop. Are your reconditioning expectations being met? Are technicians routinely replacing brakes and tires on every vehicle? “Are you over-reconning?” White asked. “That’s what you have to look at. Do you need to put brakes on every car? Is that what you expect?”
For BHPH vehicles, the goal of reconditioning is to make the vehicle safe—not to rebuild it. This analysis provides an opportunity to reinforce expectations with your technicians. Training sessions can clarify which repairs are required, which parts should be replaced, and whether new or refurbished parts are acceptable.
Cost decisions should also factor in long-term considerations. For example, choosing a used part may save money upfront, but could lead to a comeback if the part fails prematurely. Similarly, acquisition strategies may need to shift if certain models consistently require expensive reconditioning.
Many successful dealers limit who has the authority to purchase parts, reducing duplication and unnecessary spending. “I have one person responsible for ordering parts,” said Dan Grosvenor of 5 Star Auto Plaza in St. Charles, Missouri.
This individual also manages the return of unused parts—an often-overlooked process that can significantly impact costs. Without accountability, shops can quickly become “museums of unused parts” where items are set aside for a future repair that never comes.
To prevent waste and ensure accuracy, parts inventory should be checked on a regular schedule. White recommends a monthly review to account for all items, identify overstock, and curb overpurchasing. Even small, inexpensive parts can accumulate into sizable expenses over time.
Parts prices fluctuate regularly, making it important to stay informed. Dealers and service managers should monitor prices across multiple vendors and maintain open communication with suppliers to explore cost-saving options. In many cases, shopping around pays off.
The service department is central to a dealership’s performance, but without disciplined expense management, it can also become a source of lost profits. By carefully tracking parts usage, setting clear reconditioning standards, limiting purchasing authority, and monitoring inventory and pricing, dealers can gain greater control over costs—while keeping vehicles safe and customers satisfied.
