Aftermarket Departments See Positive Trends in 2021

0

We know the past 24 months have been challenging to say the least. There have been pandemic lockdowns, restrictions, supply shortages, and labor shortages, just to name a few. However, Parts and Service Departments have risen to the challenge.

First, I want to send a “shout-out” to all the men and women that support our customers and producers. These people continued to put in the hard work to support producers who, in turn, feed the world.

The 2021 WEDA Cost of Doing Business Survey shows us some positive trends in the aftermarket departments throughout North America.

In this article, I will point out some of the trends of these key metrics.

Total Aftermarket Revenues
Both Parts and Service saw increases in overall sales volume, with Parts up 12% and Service up 17% vs. the previous year.

  • Parts sales mix held its own at 7 % of total dealership sales.
  • Service Sales mix was at the highest level in five years at 6.9% of total sales.

Gross Margins
We know that Gross Margin dollars are required to pay the bills, and the Gross margin percent is used solely for trend analysis, so we will look at both metrics.

Parts
Parts Gross Margin dollars saw an average $212,000 increase per location, and Gross Margin reached 35.3%. Perhaps this was due to dealers selling off aged stock, holding margins, or being more proactive with stock order purchases to ensure adequate inventory. We may have also seen less discounting on parts as inventories tightened.

Service
Service sales volumes were up, with an average increase of about $34,000 per location in Gross Margin dollars. Although this is good news, we saw an overall drop in service Gross Margin percent to 56.8%. Since the cost of goods sold, or COGS, is primarily tech wages, this drop could be attributed to the loss of productivity when technicians’ wages continued to be paid even if they were unable to come to work.

Expenses
Reported expenses across most dealer locations remained relatively flat. However, some of that may have been due to government wage assistance programs or deferral of some expenses. We expect to see a rise in expenses as inflation on everything from energy to supplies is on its way up.

Department managers need to take this into consideration when they are making their 2022 budgets.

Aftermarket Absorption
My regular followers know that this is one of my top metrics. Contribution margin refers to the Gross Margin dollars that parts and service departments contribute to cover the overall dealership expenses. Absorption ratio is the percent of total expenses covered by parts and service. This becomes more critical in periods of lower whole goods sales or whole goods inventory disruptions. High aftermarket absorption will “bulletproof” your dealership. The long-term goal should be that the parts and service departments cover 100% of your monthly and annual fixed costs to protect you from the ebb and flow of whole goods sales.

In 2021, we saw a dramatic shift in Aftermarket Absorption with the average increasing to 73.2%. It appears large dealer groups (>$75 million) have really focused on aftermarket absorption. Medium and smaller dealers will have to shift their focus to this critical area.

Final thoughts
Although these trends may be cause for celebration, we have some major hurdles to overcome in 2022 and beyond. We will continue with supply chain issues; inflation and energy costs are showing no signs of slowing. Labor costs are sure to increase as workers will likely demand wages to increase at or above the rate of inflation.

For a copy of the 2021 WEDA Cost of Doing Business Survey, call the WEDA office in Calgary, Alberta, at (800) 661-2452 or write to info@westerneda.com. The survey is free to dealers who participated in the survey.

Additional information is available at www.westerneda.com/cost-of-doing-business-study.


KELLY MATHISON – Thank you!

This edition of Top Metrics to Watch will be the last column from Kelly Mathison. Kelly is retiring after a stellar 30-year career in the equipment industry.

ABOUT KELLY
Mathison started his career as a sales representative during the high-interest crunch of the 1980s. He then spent 10 years in sales and marketing with the distributor and wholesale manufacturer, Flexi Coil, covering Canada, Australia and the U.S. In 1996, he became a partner in a single store John Deere dealership in Brandon, Manitoba. Over the next 12 years, it grew from one store to seven when the dealership merged with Enns Brothers in 2008. Over the years, Mathison gained experience as a sales manager, aftermarket manager, general manager, and group marketing manager. In 2011, Mathison sold his partnership interest and became group product support manager with Chesterfield Australia, one of the country’s largest John Deere dealer groups.

In 2014, Mathison launched a consulting and training company, Kayzen Management, and in 2015 he joined Western Equipment Dealers Association’s Dealer Institute as a consultant and trainer. He has used his unique, real-life experience and time-tested best practice solutions to train hundreds of dealership employees.

Thank you, Kelly, for your service to WEDA, the industry and your commitment to the success and profitability of dealerships throughout North America.

Share.

About Author

Leave A Reply

2 × 5 =