By Ken Rock, Customer Care Manager, Auto/Mate Dealership Systems

Do you know how much revenue your store is losing due to policy and shop supply abuse? During a visit to a dealership, I discovered $35,000 in revenue that had slipped through the policy cracks. That’s $35,000 in one month, in one dealership.

When I say abuse, I am not talking about intentional abuse by employees, but the type of abuse that happens when nobody is tracking these expenses, as well as the absence of a process that addresses this issue.

Policy is any item sold to a customer that can’t be charged to that customer, so your dealership absorbs the cost. Examples of items charged to policy include:

• When a technician backs a customer’s car into a lift and puts a dent in it
• When a salesperson throws in a set of free floor mats to help close a deal
• When a customer is upset because their car isn’t ready at the promised time, so the service advisor offers a free oil change
• Many policy charges are inevitable, but if you’re not tracking these expenses, somehow more and more stuff tends to happen.

Shop supply is another area where I see a lot of abuse. Of course, shop supplies are a necessary cost of doing business. The cost for supplies like cleaners, solvents, rags, and waste disposal is factored into your labor rates.

But if you don’t track shop supply charges closely, abuse can happen. In effect, the higher the level of abuse, the lower your labor rate is. Examples of shop supply abuse include:

• When a technician “borrows” supplies needed for a home repair and then “forgets” to return them
• When a technician doesn’t know the exact part needed to fix a repair, so he orders three different test parts. Only one part is needed for the job, so now you have two parts sitting on your shelf that you can’t sell

In my experience, most dealers don’t pay close attention to their policy or shop supply charges. As a result, they have no idea how much money they’re giving away every month. That’s because these expenses are typically grouped into a single general ledger (GL) account, along with a bunch of other expenses.

As a dealer, you know the average dollar amount that you expect to see on your expense ledger every month. Unless something looks out of whack, you don’t investigate, right? Well, that’s the problem with policy and shop supply abuse. It’s a regular thing that occurs every month, so it never looks out of whack.

In the dealership I visited, I was shocked when I tallied up $35,000 in policy charges for one month. I asked the dealer “Have you looked at your policy charges lately?” Yes, he looked at them, but he never questioned any of them, and he had no idea that they totaled $35,000. All he saw was the lump sum of expense, and because that didn’t vary much from month to month, he never thought to examine it more closely, which means that his policy charges were probably close to $35,000 for many, many months.

That’s why it’s important to analyze your expenses. Policy and shop supply are not fixed expenses, and as a dealer, you have more control over these expenses than you think.

How to Spot Abuse

Set up a report in your DMS. It’s important to set up this report in your accounting system, and not in fixed ops. Include all expenses charged to policy and shop supply, as well as:

• Dollar amount of each item charged
• Source: service, sales or parts department
• Document number that created the item
• Which individual posted the charge in accounting (this is important information to include in the event of a theft situation)

You might not be able to see the details of each item, but with document numbers you’ll be able to refer back to the ROs and other invoices to see what the items are, and who ordered the product or service.

How to Stop Abuse

You may or may not uncover abuse. Either way, it’s a good idea to establish processes to prevent these expenses from spiraling out of control. These processes include:

• Require a manager’s signature on all policy charges
• Require parts department to record the name of the requestor, instead of using “cash sale”
• Track where your shop supplies are going

Don’t miss Ken Rock’s upcoming session at DD26 Orlando to learn how to identify policy and shop abuse, and how to set up and manage processes guaranteed to stop abuse. If you’re looking to reduce expenses, start with policy and shop supply. You’re probably giving away more than you think!