A short Service Drive Revolution episode (Chris Collins & Chris Jones) answering a caller about whether dealerships should charge internal/captive retail pricing for parts and labor. Hosts recommend charging retail to preserve dealership profitability, discourage hidden subsidies into used-car margins, and keep departments accountable; they note limited exceptions (occasional discounts or internal advisors for very high-volume used-car stores).
Chapters
Foreign.
Welcome to your Friday drive by. I am Chris Collins and this is Chris Jones.
Hello everyone.
The phone number should you have a question is 8333-Ask-STR. That's 8333-Ask-SDR. If we do play your question on the show, we will send you a gift bag, a swag bag if you will. Some pretty fun stuff.
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Let's go to this week's question.
Hi Chris, longtime listener here. I'm new in the parts and service world. About three years into the game. I came from a wildlife management standpoint family business. I'm wondering today about.
Internal pricing on both labor and parts. A small Chevrolet dealership in the northeast corner of South Dakota and I'm just curious on your take on that, on if you think it benefits if it hinders. We just kind of started talking about it at the shop ourselves and just looking for some outside input. I know larger dealerships generally do not have internal pricing. Just curious what your guys thoughts are. Thanks.
I would say that many times I have heard in my life the car business referred to as wildlife management.
I, I personally would charge retail.
Just because you know, in a dealership you have five or six different businesses. The sixth being a body shop. If you have that and each one should kind of stand on its own. It's effort, it's time, all of it.
Giving a discount to internal doesn't really tell you what you're in the cars and it also you're, you're going to pay out more in commission.
Putting that gross into a car than you are having it done internally. Now I will say internally we usually if you're selling more than 60 used cars a month, we have an internal advisor. We'd have some internal tax and we could manage our costs that way. So for the dealership overall it's more profitable to charge retail and manage that in a specific way.
So that's how I would do it. I usually find that the used car managers don't get more for the car. When you're giving them a discount on parts and labor, they, they look at a car and they're like well that one should make us 3,000 in gross. And if they're in it 40 or 41,000, they're gonna figure it out. So they sell from cost up.
That's been my experience.
Yeah, I was gonna say something very similar but I definitely notice a correlation and this is me not having any necessarily feelings other than I've just seen it work better that way. But like in general, when I look at a full financial statement of a, of a store that is doing like really, really low internal parts pricing and internal labor pricing, usually the profitability of the store as a whole, like the, the total dealership profitability is much lower than a store that I look at that's charging regular retail on parts and service. That's what I've always noticed. And like, if you're going to, you know, like Chris said, if you're going to, if you're going to make the money on a used car, you're thinking about it is that it's a car that should make you three or four grand and whether it cost you 40,400, whether or 40,620, you still make the four grand.
I always feel like this conversation is different than whether you should charge yourself retail for policy.
Yeah, I feel like that's more of a shell game.
Yeah, it's exactly where this actually, you are going to the dealership will be more profitable doing it this way.
Yeah, it's fixed gross versus variable gross.
And it also forces you to be honest about the cars that you're running through now. Every once in a while when I was a general manager, I would have service and parts participate in a bad decision. Yeah, like, hey, no, you got to work with me because we're in this one wrong or whatever. But that was rare.
Yeah, but if it's rare, nobody ever objects for the most part. The problem is when it ends up being like 8 out of 10 cars or help me out cars. That's where it. Then you just throw your policy out the window because you're.
Yeah, I would say 100 discounts.
1 in 101. 1 in 50. That's a good number.
Great question though. Thank you so much. Hope, hope it helped. We'll see you guys next time on Service Drive Revolution. Thanks for watching this week's Drive By. I hope we gave you something to think about over the weekend. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333-ASK-SD and we'll answer your question on the show. That's 8333-ASK SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com now that's offers.chriscollinsInc.com I'm Chris Collins and I'll see you in the next video.
