officina della bistecca © by thepinkpeppercorn
Very often, auto parts wholesalers buy from the manufacturers (even from notable brands) at discounts that in some cases, due to bonuses and incentives, reach 70/80%.
In the supply chain there are two other steps, the parts dealer and the mechanic, before reaching the final customer. The three steps are required since the vast majority of service centers are small establishments that cannot keep large amounts of items on stock.
Let’s follow the path of a part, guaranteeing the same income to everyone, even if this hypothesis is not very accurate, and assuming that every link in the chanin, starting with the wholesaler, has a 40% markup.
As an example, let’s take a part with a list price of €100. The wholesaler buys it with a 70% discount so he pays €30. Sold to the spare parts dealer with a 40% markup, the cost then comes to €42 and it is then in the spare parts dealer’s warehouse. The service center goes to the spare parts dealer to buy our part and therefore pays €58.80 (€42 + the 40% markup). Now the part can be installed in the customer’s car and, guaranteeing that the mechanic also receives 40%, the cost of the part becomes €82.32.
Therefore, in this example, everyone was guaranteed a 40% profit but the final cost of the part isn’t €100 but €82.32.
So, on the account for his car repair, the client should be able to see a minimum spare part discount which could, according to the example above, even exceed 17%.
This example starts with a wholesaler’s purchase price that has a 70% discount off the list price. If, on the other hand, the wholesaler’s discount from the manufacturer is 80% of the list price and, as above, guaranteeing a 40% markup at each step in the distribution chain, the customer could even expect around 45% off.
From what I’ve read on the web and information I’ve gathered, with a little bit of statistical research, no one has ever received a discount on parts from their own mechanic.
I think this is due to the fact that the majority of auto repair shops in Italy are small companies that are unfamiliar with contribution margins and company costs and so find it easier to just apply the list price without having to dabble with accounts and cost analysis or, because they don’t feel that their professionalism is recognized by the customer, they choose lower hourly labor costs with higher margins on parts.
If the first case is true, the loser is always the end user who must pay higher prices for automobile maintenance.
The same rule applies to original replacement parts. The production cost of original parts and the after market cost is the same since the same company is producing them and then selling them on the market under their own name. Indeed, many times the car company, considering the purchase volume pays much less for the part from a distributor. In some cases, the manufacturers set their cost, profiting on the part they sell under their name.
The distribution chain has the same levels which are:
- producer>automobile company>national branch>dealer>end user for the original part;
- producer>wholesaler>spare parts dealer>independent service center>end user for the after market part.
The only difference between the two distribution channels is, I believe, how the profit is divided.
I’m sure that the example above doesn’t apply to all parts, but have you ever received a discount from your mechanic or dealer?
Then, wouldn’t a reduction in the list price of spare parts be called for???
Is the situation the same in other European countries?
