The Pros And Cons Of Selling OEM Parts Online – For Dealerships
When we talk to dealership parts managers, GMs, and owners, they often ask “Why should we sell parts online?” The conversation usually touches on a few points:
- Dealership parts departments have functioned just fine historically without selling parts online
- Selling parts online is more complex than local wholesale and over-the-counter business
- Online parts margins are low
- Selling parts online requires investment
These are all great points. In fact, selling parts online is not a great idea for every dealership. In this article, we’ll talk about the pros and cons of selling OEM parts online, and hopefully help you make the right choice for your dealership.
PRO: Selling Parts Online Is A Great Way To Grow
For most parts departments, selling parts online is the only clear path to significant revenue growth. This is because:
- Over-the-counter parts sales are often tied to sales and service growth. If these departments don’t grow, the parts department is stuck in a rut.
- In larger markets, local wholesale is a significant revenue stream, but it’s also low margin and expensive to grow
- In smaller markets, local wholesale is usually not a significant revenue stream
- Driving customers to the parts counter is very difficult when competing with national parts chains selling cheap aftermarket parts
For some dealerships, the fact that parts can’t grow on their own is not a concern. A high-earning parts department requires a big footprint and a large staff, and the profitability of these larger departments is variable. A small parts department with a small staff can more easily turn consistent (and tidy) profits.
Still, growth is vital. And if a parts department can sell parts online, they can drive revenue despite the performance of sales and service or the limitations of the local wholesale market. Here at Spork, several of our dealership clients operate in small markets, and their parts operations are a big driver of dealership revenue and profits.
PRO: Automakers Love Parts Departments That Grow
From bonuses and trips to back-end money, there are a lot of perks and profits available to dealerships that find a way to grow their parts revenue year after year. Within a year or two of launching an online parts store, most dealerships hit parts sales objectives that increase back-end money, return allowances, etc.
NOTE: Not every OEM offers incentives for sales volume growth, but most have some form of co-op reimbursement that can be put towards online marketing and advertising costs.
CON: Growing Online Sales Usually Isn’t Profitable
If you were to build a brand new dealership in a new location, it probably wouldn’t operate profitably right away. It would likely take months or years for the new store to operate at a profit. And while no one likes an alligator, it’s understood that a new dealership will achieve profitability – that’s why the investment is made in the first place.
Launching a new online parts store is a lot like building a new dealership:
- There’s an up-front investment
- There are a lot of people that have to do things a little differently (parts staff will have to get better at the phones, the office staff will need to adjust the parts reconciliation process, and managers will have to review what parts they’re stocking)
- The new online store won’t usually make money for months (or even years for more competitive brands)
While building a new parts ecommerce store is much cheaper than building a new dealership, they’re both brand new businesses that take time to find their feet. Profits won’t come right away.
PRO And CON: Selling Parts Online Is A Lot Like Wholesale
Selling parts online is a heck of a lot like wholesaling them, which is great if your parts department is already doing wholesale:
- Online parts customers expect a cut-rate price
- Online parts customers expect fast delivery
- Online parts customers want to be told right away about backorders, out-of-stock parts, etc.
- Online parts customers want to call and ask questions
- Just like wholesale, selling parts online profitably requires diligence
For some dealers, the fact that wholesale and online parts sales are so similar is a big negative. But we would argue that dealerships that are already good at wholesale are prime candidates for selling parts online: If your parts department can do wholesale profitably, they can absolutely tackle ecommerce.
In fact, selling parts online is actually easier than wholesale in that there’s less up-front investment. When you launch a wholesale department, you usually start by hiring a wholesale sales rep. But all you need to get ecommerce rolling is a website and a marketing budget (read more about how a parts manager can tackle an ecommerce website in this blog post).
PRO: It’s A Great Career Move For The Parts Manager
It’s not a stretch to say that many dealer principals and/or general managers don’t fully understand the parts department. Many view parts as a black box where parts and customers go in on one side and profits come out on the other.
As a result, parts managers who manage to grow their department faster than the rest of the dealership – and who contribute to an unexpectedly large portion of the dealership’s net profits – are often moved up and compensated more.
CON: The Manufacturers Are Trying To Take Over Online Parts Sales
It’s been a long time coming, but several manufacturers have invested in ecommerce sites that are fully backed by the brand. With these investments – and greater attention towards parts ecommerce – it’s become harder for individual dealerships to “take over” the parts ecommerce business like it was 10 years ago.
- The manufacturers have never been as good at execution as dealers
- The manufacturers are more invested in their ecommerce stores “looking good” than they are in actual performance
There’s still plenty of opportunity for dealers that are willing to run with the big dogs, but dealers who put forth a half-effort are likely to fail.
PRO: The Future Of The Parts Business Is Online
While there will always be a percentage of customers who refuse to buy online, that number is getting smaller all the time. Amazon.com went from a crazy dream in 1994 to a company that did $89 billion in revenue in 2014 and $469 billion in 2021.
The point here is that the OEM parts business is changing. Ecommerce is going to become a larger and larger component of that business, and anyone who ignores that reality is going to fall behind.
All of our OEM parts clients have three things in common:
- They launched their parts businesses with an eye toward long-term growth
- They are well managed and operationally efficient – everyone in the parts department does their jobs at a high level
- The dealer principal, general manager, and parts manager are all aligned on the mission
If this describes your dealership – and the information above has you excited to get a parts ecommerce store rolling – contact us. We’ll help you get a website set up, give you some tips and pointers on operations, and start marketing.
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