We have been asked this question many times, so I decided to write a post about it, because I hate when customers think that repair shops try to rip them off with parts costs. This is not the case.
Repair shops make their money to pay their bills from 2 sources: 1: from selling their repair service and charge by time. Most car repair shops use an auto repair software telling them how much they should charge for each repair. For example “water pump replacement”. The amount of time depends on the year, make and model of the car. This time is mostly accurate, however, often it’s not so accurate. For example we had a Porsche starter that takes 5-6 hours and the software gives only 3.5 hours. When customers ask for a quote, since we are not able to waste the mechanic’s time to do estimates, we use a software, we call pull these estimates from. Therefore, when we give a quote, we get the hours needed from the software, multiply it by the hourly rate and add the cost of the part, plus taxes. Since charging for labor alone doesn’t cover costs and expenses, repair shops sell the parts at a profit to make up for the difference.
Charging only hourly rate, will not pay for the expenses of the business. We charge $100/hour, some other shops charge $110, $125, the MBZ dealer charges $160. Some people think, oh my gosh, you charge $100/hr! Yes, but they don’t think about the expenses a shop has. Especially, a German car specialty shop. Every car requires a different diagnostic computer, every job requires a tool, that often can only be used for one type of car and for only one type of job only. An average specialty repair shop will spend over $10,000 on tools alone each year. Anyway, after expenses taken out, paying for fees, licenses, taxes, employees, auto repair shops don’t do as well as many think.
What I am trying to get to is this: The hourly rate only covers a portion of the expenses. That is why auto shops have a resale license, to sell parts at retail. Even though we never charge retail for parts, it doesn’t mean that shops that sell at full retail are ripping customers off. It just means that they don’t sell it below value. It is up to them if they want lose profit and offer discounts, or they need to pay employees and charge full retail price.
Online Parts Costs
The main issue goes down to this: Retail price is what you pay when you go to the store to purchase a part. You cannot compare those prices to parts purchased online. Online shops do not carry an inventory. They all get their supply from distributors that are willing to dropship for them. What does this mean?
Here is how dropship works: Customer places an order online on whateverpartsshoponline.com for a part, that cost $100. The website owner often doesn’t have to do anything, because the order goes directly to the distributor who ships the product. Therefore the company that sells the parts on the website, had no real cost to store these parts, ship them out, or pay sales people. The distributor does all that. Because of this, they can sell a part even $2-3 above wholesale and still make a profit. They work in bulk. They get in 200 orders at average $5 profit each, that a $1000 a day.
Parts Costs at an Auto Repair Shop
Now let’s see how it is priced at the auto shop.
Local Distributor Costs
The auto repair shops purchase their parts at the local distributor, who has to pay for
- sales people
- phone lines
… and also has to make a profit to stay in business, right?
I called our distributors, and said that “hey, the online price is lower than our cost, we can’t even match the price”. They said that their cost is higher than the online shops. Because of that, repair shops often can’t even get prices that low.
Auto repair shops and their customers get the convenience of getting their parts delivered in a reasonably short time, often in a few hours, sometimes even in an hour and get a warranty. Getting warranty on parts and repair is only possible because the parts sold by the distributor is backed by a warranty and repair shops can offer this warranty with a confidence that they will not have to do the repair twice because of a bad part. Customers can buy a part online and not know the quality they are receiving.
Part costs are higher at auto repair shops because
- distributor pricing higher than exact part cost online
- backed by warranty
- delivered fast
- repair shops sell it at a small profit to compensate for the loss of income from software generated labor costs
Apples to Oranges
Customers often compare prices of an aftermarket or used part online to genuine or OEM part offered at reputable auto repair shops. You can’t compare apples to oranges. It won’t make sense.
I will write about prices regarding apples and oranges in another post.
If you can get parts at wholesale cost or way below retail price, get the warranty and quality price, please be grateful. That means the repair shop is willing to sacrifice their profit to offer a better price to you as a customer. Many shops sacrifice the quality of the work to offer lower prices. If you get all those benefits, it’s because the shop is willing to give it!