By Ed Kovalchick, CEO, Net Profit, Inc.

By now, you (just like the rest of us) are likely dealing with continued expenses and abbreviated to no income to offset these never-ending pulls on your department’s checking account. At this point, reducing overhead, just like it’s structured – a little here and more there – is the best and only shrewd alternative.

At any rate, I started thinking about the massive outlay of dollars that I’ve had to manage or help others manage over the years and the times when I found savings through creative analysis or just stumbling over waste and/or rip-off. Now, once again after the crash of 2010, we are faced with huge money stress, while frankly, most department managers aren’t regularly analyzing expense details – sign this, move on. No thanks to monumental paperwork, agitated customers, whining employees, demanding owners, consistent absenteeism, and pressured factory personnel encompassing all the available attention from an exhausted and frustrated department boss. Raise your hand if this is you.

Following are some areas to consider magnifying to determine potential spending cuts now and likely in the future when business takes off again. Adding to your bottom line never hurts too much.

The “Rag Man”
In my early career, I became the fixed ops director in a 300+ car-a-month GM store. The “Rag Man” (providing uniforms, mats, towels, first aid, and other business necessities) had been working the dealer for years, and his company purchased vehicles there, so the relationship was fundamentally untouched as you might imagine. The fixed ops expenses were massive, so I began a thorough study of each account, which incidentally ticked off the office manager because I made him dig out all the payables. He thought differently later.

Of course, I noticed right away that the supporting paperwork was half finished/not properly done, including unsigned invoices. At the next supply visit, the comfortable, forever “Rep” and I examined every item, piece by piece – it created the second pissed-off person – and as you might guess, we were being ripped off massively with fake excessive counts of just about everything being supplied. When I extrapolated the excessive cost over only five years, it was enough to choke on. You get the picture.

Abrasives and sandpaper can be had in abundant grits and configurations, enough to fill up half-a-dozen shelves of stock. Among the multitude, entire boxes make their way into the shop (and sometimes elsewhere), with no thought to the cost per item (which should be written on the containers), or what was paid versus what could be negotiated or found much cheaper elsewhere. With some areas of the country still in the ridiculous middle $20s for paint and materials, a tight monitor on this program can pay real dividends. I won’t bring up the constant waste of these items here but checking the use per tech is a bloody eye-opener.

The hardware merchant is sometimes another sneaky purveyor. I can’t count the number of these suppliers of miscellaneous items ripping off dealers. Need 10 items for the year’s supply? Sorry, comes in a box of 50; but don’t worry, I will push the extras way to back where you won’t even notice. A second issue is the price of individual items. I have found unexplained price increases and even billing of items that don’t exist. No surprise.

My rule is that I want a current price sheet, or like, to compare our pricing agreement with the actual charges. Some smart managers organize their purchase order list. However, let’s be real. When the parts department houses these items, billing “whatever” purchases directly to service supplies for a markup – who really cares?

Safety supplies are right in there with the hardware circumstance. Unmonitored automatic refills, combined with little or no price shopping, questionable stocked items, and no actual security creates an unnecessary monetary loss.

Masking supplies from films, paper, tapes, sheeting, and dispensers – there is real expense here to be managed. In a collision facility of any real size, this makes up thousands of dollars annually coming off the bottom line too often from overpaying and poor use techniques.

Filler – putties – adhesives – sealers are areas of large investments over time, and sloppy metalwork usually eats up any income when it’s slammed with these products, not to mention the long-term effects of work quality. Shopping for price here is very smart too.

Brake cleaner is not a substitute for a cleaning vat or spray degreaser, which is cheaper. And brake cleaner can damage painted surfaces as well as rubber and plastic. I have seen the price of this chemical all over the board, but quantity purchase (by the gallon) is a much better deal. I witnessed technicians spraying $15 worth of brake cleaner all over the engine compartment to clean out the oil and grease – expensive and wrong choice with no recoup.

Since so many of today’s service and body managers have never been technicians, they can lack awareness of supply waste and related cost management. And techs generally just don’t care, since it’s not coming out of their paycheck.

Paint supplies are a lot more than paint and a cup. There are at least 16 areas of expensive application and maintenance costs in the world of painting. Waste here is an issue to be managed, and purchasing costs are all over the board. Many aggressive managers have switched to consignment programs where the current cost is based on usage.

Cost management of items such as the above is smart now more than ever. A valid technique is to measure how much of these and other support items each tech uses/wastes versus the amount of flat-rate he or she generates for say one month for instance. Many times, I have moved all the hardware and supplies we could into the parts department for security and then originated a ticket for each tech. As items are procured (hopefully delivered), they are charged to the tech’s account so the flat-rate vs supply/hardware cost per flat rate hour can be tabulated easily. I have calculated as low around a $1 per FRH, while I did find one calc over $5 belonging to a tech who did a lot of side work, I was informed! Two to three bucks per FRH is a common calculation. Makes a strong case for the supplies fee.

Service/body/parts equipment/paint booth maintenance is necessary but also another area that you must examine. What service do you get at what fee, how often, and why? These are reasonable questions deserving absolute answers. Like everything else, pricing is negotiable. I run into newer department managers who don’t realize this, and just stick to whatever – “that’s what they have always done” drives me nuts. Assume nothing, then dig into the facts, particularly if you just took over as Top Gun. Oh, if you are told the dealer or GM set up the deal to get you to back off, that’s a sure sign to investigate. It likely hasn’t been looked at since inception, and it usually magically changes without any communication.

Of course, there are additional expenses that must be forcefully regulated by the department super, such as trash removal, a multitude of chemicals, cleaning vats, utility use, shop tools, and much more.

Department charges should never get paid without the manger’s review and sign off. I see expense charges that are paid all the time after passing through another department like parts but charged to service or the collision center for example. Purchase orders issued by parts for other departments arbitrarily, then the bill paid directly in the business office, is nonsensical. As a department manager, I don’t want to see anything charged to me that I didn’t authorize in the beginning – otherwise, my attitude is “then who authorized it, can pay for it.” As a former dealer myself, I expected my department heads to act like CEOs regarding expenses, nothing less. I could not keep up with the millions we spent per year, nor could my CFO.

Financial statement expense categories are many, and there are more expenses to analyze, negotiate, and tightly control than the few I have mentioned here. The next step is to break each category down, including examining all payables closely. Question everything, assume nothing, and hold everyone affiliated accountable, including supplying credible financial backup for every dollar. Then, set up an easy-to-use but thorough methodology for monthly expense reconciliation, complete with the appropriate supporting resources.

If you need to learn what’s in each financial statement expense account, each manufacturer has a custom, free accounting manual (online) that lists what charges go in each account and how to account for each. Every department manager should maintain one for reference. I have even taught classes to controllers and office managers who needed to learn the correct processes for expense distribution. Let’s just say you will be surprised most likely.

Income Notes
Jobbers price from at least four levels, depending on purchase volumes in most cases. When I query the typical dealer parts chief, he or she has no idea at what price level they are purchasing, how many suppliers they’re using, or the volumes. There are always big dollars spent locally for a variety of reasons. I have negotiated some great deals for dealers by combining purchases to primarily one source and creating some local competition (who wants this much dough – what are you going to give us?). Besides creating a sweet 50% to 70% margin (not markup), we had free training, Internet ordering, parts warranty, including labor, extended, and national warranty; a pro to order through, 15-minute delivery, 100% returns, and more.

State Farm and likely others, are paying collision centers for “cleaning vehicles as a precaution against the COVID-19 coronavirus.” From Repairer Driven News: “State Farm has told Select Service auto body shops it will reimburse an hour of body labor and $25 in materials expended cleaning vehicles as a precaution against the COVID-19 coronavirus.” This might open the door for service cleaning as warranty work (extended or otherwise) is performed. Some shops are featuring a total interior disinfectant service (sprayed on – wipe down) for a nominal fee. This procedure ties to the government-required “social distancing” rules.

Other Expenses Worksheets
There’s a group of expenses that regularly occur and are distributed among all of the applicable departments. Examples would be the distribution of rent, utilities, facility maintenance personnel, etc. I have developed easy-to-use Excel worksheets, complete with formulas and expense lists, to establish a correct dispersal of this scratch. If you would like copies, email [email protected] with the subject line, “I Need to Fix Those Expenses.”